' 


//  -  3-. 


THE  LIBRARY 
OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


2 


CORNELL  STUDIES 

IN 

HISTORY  AND  POLITICAL  SCIENCE 


ISSUED  BY 

THE  PRESIDENT  WHITE  SCHOOL 

CORNELL  UNIVERSITY 


VOLUME  IV 


SOCIAL  INSURANCE 
AN  ECONOMIC  ANALYSIS 


BY 

ROBERT  MORSE  WOODBURY,  Ph.D. 

Assistant  Professor  of  Economics  in  the  University  of  Kansas 

SOMETIME   PRESIDENT  WHITE   FELLOW   IN   POLITICAL 
AND    SOCIAL    SCIENCE     IN     CORNELL     UNIVERSITY 


NEW  YORK 

HENRY  HOLT  &  CO. 

1917 


The  RuMFono  PRE88 
Concord,  N.  H. 


7011 


TO 


MY  FATHER  AND  MOTHER 


669662 


TABLE  OF  CONTENTS 


Chapter  page 

I.     The  Development  of  Social  Insurance I 

II.     Voluntary  versus  Compulsory  Insurance  in  the  United 

States 21 

III.  The  Burden  of  Accident  Cost 38 

IV.  Incidence  of  the  Burden  of  Accident  Cost 55 

V.     Amount  and  Weight  of  the  Burden  of  Social  Insurance  in 

Germany 74 

VI.     The  Shifting  Process  in  Industry 100 

VII.    Effect  of  Insurance  upon  Capital  and  Enterprise 107 

VIII.     Effect  of  Insurance  upon  Wages 113 

IX.     Effect  of  Insurance  upon  Thrift 128 

X.     Effect  of  Workmen's  Compensation  on  the  Prevention  of 

Accidents 142 

XI.     Conclusions 156 

List  of  Authorities  Cited 160 

Index. 165 


PREFATORY  NOTE 


The  present  study  was  suggested  by  the  frequent  refer- 
ences in  the  literature  of  social  insurance  to  the  burden 
imposed  by  legislation  for  workmen's  compensation  and 
old  age  pensions.  These  references  usually  mention  the 
complexity  of  the  economic  forces  concerned  and  the  intri- 
cacy of  analysis.  If  the  writer  is  strongly  in  favor  of  the 
policy  of  compulsory  insurance  the  subject  is  often  dis- 
missed with  a  few  optimistic  generalities;  if  opposed,  it  is 
dismissed  with  as  little  real  analysis,  but  with  a  prediction 
of  ominous  possibilities  to  business  or  to  the  wages  of  work- 
men. In  the  present  book,  submitted  in  1915  to  the  faculty 
of  the  Graduate  School  of  Cornell  University  in  partial  ful- 
fillment of  the  requirements  for  the  degree  of  Doctor  of 
Philosophy,  an  attempt  is  made  to  study  the  question  of 
the  burden  of  insurance  critically.  German  experience 
respecting  the  cost  and  weight  of  insurance  contributions 
has  been  reviewed.  The  possible  effect  of  compulsory  insur- 
ance on  thrift  has  been  analyzed  and  the  effect  of  accident 
insurance  upon  the  accident  rate  illustrated  by  German 
statistics.  The  analysis  completed,  it  becomes  possible  to 
weigh  the  burden  of  cost  and  social  disadvantage  with  the 
positive  advantages  to  be  derived  from  the  compulsory 
insurance  of  the  working  classes,  and  to  reach  a  reasoned 
conclusion  with  respect  to  the  wisdom  of  a  policy  of  social 
insurance.  No  attempt  has  been  made  to  discuss  or  to 
criticize  the  various  measures  and  methods  of  insurance  in 
special  fields. 

The  writer  wishes  to  acknowledge  with  gratitude  valuable 
suggestions  and  criticisms  from  Professor  Alvin  S.  Johnson 
of  Leland  Stanford,  Jr.  University,  Professor  Walter  F. 
Willcox,  Professor  Allyn  A.  Young,  and  Professor  Charles 


X  SOCIAL   INSURANCE 

H.  Hull  of  Cornell  University.  Acknowledgement  is  also 
made  to  Professor  Young  for  editorial  revision  and  for 
assistance  in  proof  reading. 

Robert  Morse  Woodbury. 
Lawrence,  Kansas, 
December,  191 6. 


SOCIAL   INSURANCE 


CHAPTER   I 

THE  DEVELOPMENT  OF  SOCIAL  INSURANCE 

The  movement  for  social  insurance  is  an  attempt  to 
solve  certain  new  problems  arising  from  new  industrial 
conditions.  Modern  productive  methods,  gathering  large 
bodies  of  workmen  together  in  factories,  and  demanding 
large  amounts  of  capital,  have  magnified  the  difference  in 
position  of  the  employer  and  the  employee  and  have  fur- 
thered the  development  of  a  working  class.  The  special 
problems  of  that  class  have  been  brought  into  prominence. 
Among  them  the  safeguarding  of  the  economic  position  of 
workingmen  by  elimination  of  fluctuations  of  income  is  of 
great  importance.  The  advantages  of  adequate  compensa- 
tion for  industrial  accidents  and  of  insurance  of  workingmen 
against  sickness  and  old  age  are  appreciated  by  an  enlight- 
ened public  opinion.  The  interruptions  of  earnings  due  to 
sickness  and  accident  may  be  eliminated  or  reduced,  the 
hardships  and  distress  of  a  workman  and  his  dependents 
lessened,  the  days  of  old  age  made  secure  and  free  from  the 
stigma  of  pauperism.  Legislation  to  secure  these  ends 
has  been  widely  enacted. 

But,  as  with  most  measures  of  economic  or  social  signifi- 
cance, questions  of  cost  arise:  benefits  must  be  considered 
in  relation  to  cost.  Are  the  advantages  of  social  insurance 
sufficient  to  warrant  the  expense  ?  Who  should  pay  for  it? 
What  of  the  economic  burden  laid  upon  industry?  Ques- 
tions of  the  shifting  and  incidence  of  the  burden  of  cost, 
the  effect  of  social  insurance  upon  industry,  enterprise,  and 
wages  must  all  be  considered,  and  possible  disadvantages 


2  SOCIAL    INSURANCE 

weighed.  Will  insurance  exert  an  unfavorable  effect  on 
thrift  in  the  working  classes?  Does  compensation  for  in- 
juries tend  to  increase  the  accident  rate?  These  questions 
may  not  safely  be  disregarded.  The  present  chapter  will 
attempt  to  trace  the  development  and  describe  the  present 
extent  of  social  insurance  legislation.  In  the  following 
ch.  pters  the  argument  for  adequate  protection,  even 
though  it  involve  compulsion,  will  be  presented.  Succeed- 
ing chapters  will  be  devoted  to  an  analysis  of  the  economic 
and  social  effects  of  social  insurance,  a  careful  study  and 
weighing  of  which  is  necessary  before  a  satisfactory  con- 
clusion on  the  desirability  of  social  insurance  legislation  can 
be  reached. 

Social  insurance,  strictly  speaking,  is  not  insurance  at  all. 
Insurance  involves  the  distribution  of  the  burden  of  acci- 
dent or  other  loss  among  persons  exposed  to  risk  by  means 
of  premiums  so  measured  as  to  equal  the  cost.  Social  in- 
surance is  a  term  applied  to  government  action  with  refer- 
ence to  the  problem  of  eliminating  uncertainty  from  the 
income  and  life-position  of  workingmen.  An  accident  may 
cripple  a  laborer  for  life  and  prevent  him  from  earning  a 
livelihood;  sickness  may  cause  a  temporary  or  permanent 
loss  of  earnings;  old  age  may  find  him  unprepared  with 
savings  and  unable  to  support  himself.  All  of  these  con- 
tingencies may  be  met  by  insurance  voluntarily  assumed 
by  persons  subject  to  risk.  Legislation  designed  to  lessen 
uncertainties  or  fluctuations  of  income  arising  from  these 
causes  may  be  termed  social  insurance  legislation.  A  leg- 
islative measure  may  require  workmen  to  insure  themselves 
against  accident  or  may  take  the  form  of  imposing  upon  the 
employer  liability  for  damages  arising  from  negligence,  or, 
as  in  workmen's  compensation  and  in  accident  insurance, 
the  employer  may  be  required  to  pay  specified  rates  of 
compensation  to  injured  workmen.  Measures  requiring  or 
assisting  workmen  to  insure  against  sickness,   invalidity, 


THE   DEVELOPMENT   OF   SOCIAL   INSURANCE  3 

or  old  age  are  designed  to  reduce  the  fluctuations  of  income 
of  workmen.  It  is  usual  in  such  legislation  to  lay  a  part 
of  the  cost  on  the  employer.  State  old-age-pension  schemes 
represent  a  bold  assumption  by  the  state  of  responsibility 
for  the  aged  workman  whose  income  is  insufficient.  All 
such  legislation  falls  within  the  field  of  social  insurance.1 

The  test  of  the  adequacy  of  social  insurance  legislation 
is  the  degree  of  completeness  with  which  the  legislation  ac- 
complishes its  object  in  its  special  field — the  elimination  of 
insurable  uncertainties  from  the  income  of  workmen.  The 
development  of  social  insurance  shows  a  progressive  ten- 
dency toward  greater  adequacy.  The  (limited)  liability 
of  employers  for  damages  resulting  from  negligence  has  been 
superseded  by  workmen's  compensation  and  accident  in- 
surance laws  applicable  to  practically  all  industrial  acci- 
dents. Legislation  encouraging  and  assisting  voluntary 
insurance  has  given  place  to  compulsory  insurance  legisla- 
tion. The  chief  obstacles  in  the  way  of  more  adequate  pro- 
tection have  been  the  difficulties  of  administration  and  en- 
forcement. But  methods  have  gradually  been  perfected 
by  which  premiums  can  be  regularly  collected  and  the  in- 
surance of  workmen  efficiently  controlled. 

An  important  feature  of  the  development  of  social  in- 
surance legislation,  though  not  directly  connected  with  the 
trend  to  compulsion  and  to  greater  adequacy,  is  the  evolu- 
tion of  the  division  of  the  burden  of  cost.  A  given  division 
of  cost  reflects  as  it  were  the  prevailing  concept  of  equity 
in  apportionment;  but  where  determined  by  legislative 
enactment,  it  may  also  be  regarded  as  an  indication  of  the 
political  strength  of  the  parties  to  the  division. 

1  Unemployment  insurance,  maternity  insurance,  etc.,  fall  within  the 
field  of  social  insurance,  but  they  are  not  here  specifically  treated.  Un- 
employment insurance  has  been  only  recently  developed,  and  the  special 
difficulties  connected  with  compulsory  unemployment  insurance  are  so 
great  and  to  such  a  large  extent  still  awaiting  solution  that  it  has  not 
seemed  worth  while  to  give  it  a  separate  treatment. 


4  SOCIAL   INSURANCE 

A  brief  outline  of  the  development  of  social  insurance 
legislation  in  Germany  will  show  more  clearly  the  steps  of 
progress.  Germany  is  selected  rather  than  England,  be- 
cause it  was  there  that  the  advantages  of  protecting  work- 
men by  social  insurance  legislation  were  earlier  appreciated. 
In  Germany  the  spirit  of  laissez-faire  and  of  individualism 
was  not  present  to  act  as  a  deterrent  to  such  legislation. 
In  Germany,  too,  were  developed  those  methods  of  admin- 
istration which  made  a  compulsory  system  of  insurance 
feasible. 

The  development  of  the  liability  of  employers  for  acci- 
dents derives  its  character  from  the  fact  that  the  law  found 
in  "negligence"  a  basis  for  assessing  damages.  In  Germany 
the  early  "common  law"  was  in  this  respect  similar  to  that 
of  England.  Damages  could  be  recovered  by  an  injured 
workman  from  the  person  at  fault,  if  negligence  could  be 
proved.  The  employer  was  responsible  for  carelessness  in 
the  installation  of  plant  or  factory,  for  defective  equipment, 
for  neglect  of  necessary  repairs,  for  the  improper  selection 
and  supervision  of  workmen.  If  the  person  at  fault  was  a 
representative  of  the  employer,  the  latter  was  legally  liable 
for  damages  only  if  it  could  be  shown  that  he  was  negligent 
in  the  selection  of  his  representative.1 

From  the  point  of  view  of  adequate  compensation  proof 
of  negligence  was  a  poor  basis  for  assessment  of  damages. 
The  first  modification  was  contained  in  the  Prussian  law  of 
November  3,  1838,  applying  to  railroads,  then  newly 
introduced.  The  employer  could  escape  liability  only  by 
bringing  positive  proof  that  the  accident  was  caused  by  the 
fault  or  negligence  of  the  person  injured  or  was  due  to  an 
unavoidable  external  chance,  or  act  of  God.  No  distinc- 
tion was  made  between  employees  and  passengers.  The 
burden  of  proof  was  placed  not  upon  the  employee  but  upon 
the  railroad.     After  the  formation  of  the  empire,  this  pro- 

'Elster,  Haftpflicht,  in  Handworterbuch  der  Staatswissenschaften,  3d 
ed.,  V.  220. 


THE  DEVELOPMENT  OF  SOCIAL  INSURANCE       5 

vision  was  extended  by  a  law  of  June  7,  1871,  to  the  rail- 
roads of  the  empire.  The  same  law  contained  provisions 
applying  to  mines,  quarries,  and  factories.  The  employer 
was  made  liable  for  the  negligence  or  fault  of  a  deputy  or 
superintendent,  and  the  earlier  defence  that  he  was  not  at 
fault  in  the  choice  of  his  representative  was  swept  away.  In 
these  industries  the  burden  of  proof  remained  with  the  in- 
jured employee.1 

The  next  step  was  the  enactment  of  the  accident  insur- 
ance legislation  of  July  6,  1884.  Employers  in  specified 
branches  of  industry  were  required  to  form  mutual  asso- 
ciations and  pay  compensation  on  a  scale  determined  by  the 
law  for  injuries  received  in  the  course  of  employment.  In 
later  laws  the  scope  of  this  insurance  was  extended  till 
practically  all  industries,  including  agriculture,  were  cov- 
ered. In  these  laws  negligence  of  employer  is  abandoned 
as  a  basis  of  award;  adequacy  of  protection  is  the  guiding 
principle.  But  the  new  apportionment  of  cost  followed 
substantially  the  logic  of  the  previous  division.  If  negli- 
gence was  proved,  it  had  seemed  equitable  that  the  em- 
ployer should  pay:  negligence  implied  liability.  When  the 
concept  of  negligence  was  illogically  extended,  the  cost  placed 
upon  the  employer  increased.  With  the  abandonment  of 
the  basis  of  negligence,  the  employer  was  still  held  respon- 
sible for  most  of  the  cost,  and  reasonably  so  from  the  stand- 
point not  of  negligence  but  of  adequate  compensation. 
The  only  change  was  the  assignment  of  part  of  the  cost  of 
caring  for  accidents  during  the  first  thirteen  weeks  to  the 
sickness  insurance  system;  this  meant  that  approximately 
8  per  cent  of  the  total  cost  of  accidents  was  laid  upon  the 
employee.2 

In  the  development  of  sickness  and  invalidity  insurance 
and  provision  for  old  age,  the  trend  from  voluntary  to 

1  Handwdrterbuch,  V.  221. 

'Lass  and  Zahn,  Einrichtung  und   Wirkung  der  deutschen  Arbeitet' 
versicherung,  185  (1900). 


6  SOCIAL    INSURANCE 

compulsory  insurance  can  be  clearly  traced.  At  a  very  early 
time  some  provision  for  accident  and  sickness  and  old  age 
was  voluntarily  made  through  private  and  mutual  organi- 
zations. Many  of  the  guilds  and  journeymen's  associa- 
tions provided  for  the  care  of  sick  members  by  regular 
payments  to  a  monastic  hospital.  The  Prussian  law  of 
1794  codified  most  of  the  provisions  then  existing  in  guilds 
and  among  workmen.  According  to  this  codification 
journeymen  were  permitted  to  choose  one  of  their  number 
to  superintend  a  fund  to  provide  for  common  needs, 
especially  for  the  care  of  the  sick  or  otherwise  unfortunate. 
The  fund  was  liable  to  be  drawn  upon  to  assist  even  newly 
arrived  journeymen,  who  had  not  yet  secured  employment 
in  the  town.1  Masters  were  required  to  provide  for  a  sick 
journeyman  only  in  case  the  assistance  given  by  the  jour- 
neymen's fund  was  insufficient.  The  master  was  not 
required  to  care  for  a  sick  apprentice  unless  it  was  specified 
in  the  contract.  Guilds  of  masters  were  primarily  for 
mutual  assistance  among  themselves.  Factory  owners  had 
in  general  the  same  rights  and  duties  as  guild  members,  and 
their  employees  had  much  the  same  position  as  journeymen. 
The  cost  of  caring  for  sick  and  injured  workmen  was  placed 
upon  their  own  mutual  organizations.2 

In  the  mining  industry  associations  of  workmen  were  much 
more  highly  developed.  The  need  of  organization  for 
mutual  assistance  was  greater  because  of  the  greater  fre- 
quency of  accident  and  the  greater  risks  of  the  employment. 
The  principle  of  compulsion  was  recognized  in  the  early 
laws  relating  to  the  Knappschaftskassen,  or  miners'  asso- 
ciation funds.  Compulsory  contributions  were  required  of 
the  journeymen  miners  to  meet  the  cost  of  sickness  and  acci- 
dent.    The  claims  of  injured  workmen  against  the  associa- 

1  Manes  (Honigmann),  Arbeiterversicherung  (Deutschland)  in  Hand- 
worterbuch,  3d  ed.,  I.  798-9. 

2  Honigmann,  Arbeiterversicherung  (Deutschland),  in  Handworter- 
buch,  1st  ed.,  I.  519  et  seq. 


THE  DEVELOPMENT  OF  SOCIAL  INSURANCE        "J 

tions  were  given  legal  sanction  in  the  Prussian  codification. 
Part  of  the  cost  of  the  care  of  sick  and  injured  miners  was 
placed  by  law  upon  the  mine  owner,  whose  liability  ex- 
tended to  from  four  to  eight  weeks  of  illness.  The  journey- 
men's funds  were  required  to  care  for  cases  of  accident  and 
sickness  after  the  employers'  liability  had  been  exhausted. 
Employers  regularly  gave  contributions  or  subsidies  to  the 
journeymen's  funds.1 

Seamen  were  entitled  to  benefits  prescribed  by  special 
laws.  A  seaman  who  was  injured  or  who  fell  sick  during 
the  voyage  had  to  be  cared  for  at  the  expense  of  the  captain 
or  owner  till  the  home  port  was  reached,  and  in  case  of 
death  small  payments  ranging  from  one  to  four  months' 
wages  were  to  be  paid  to  the  widow  or  heirs.2 

A  servant  in  city  and  country  was  entitled  to  be  cared 
for  in  sickness  by  his  employer,  if  he  became  sick  or  dis- 
abled during  or  because  of  his  work.  In  other  cases,  the 
employer  was  required  to  give  only  temporary  care,  and 
could  deduct  the  costs  of  such  care  from  wages.3  Laborers 
in  the  country  were,  prior  to  1807,  in  a  condition  of  serfdom, 
and  the  landowner  was  required  to  care  for  them  in  case  of 
need  and  to  provide  for  orphan  children. 

The  protection  thus  afforded  some  classes  of  workmen 
was  considerably  weakened  by  changes  in  the  direction  of 
greater  freedom  for  the  laborer  and  for  the  employer. 
In  the  early  part  of  the  nineteenth  century,  freedom  of 
movement  was  given  to  country  laborers.  The  abolition 
of  serfdom  meant  that  landowners  were  no  longer  required 
to  care  for  sick  or  injured  farm  laborers.  The  control  of 
the  guild  over  trade  was  taken  away  and  industrial  freedom 
realized.  The  right  of  journeymen  and  workers  to  form 
unions  and  associations  was  recognized.  The  guild  asso- 
ciations were  no  longer  responsible  for  the  care  during  sick- 

1  Handwdrterbuch,  1st  ed.,  I.   520. 
J  lb.  520-1. 
aIb.  521. 


8  SOCIAL    INSURANCE 

ness  of  the  journeyman  in  his  apprentice  years  of  Wander- 
schaft.  Some  of  the  funds  were  dissolved.  Most  of  the 
organizations  which  had  been  compulsory  continued  to 
exist  under  the  changed  conditions. 

An  important  step  in  the  direction  of  compulsion  was 
taken  in  1845.  The  increased  liberty  of  movement  of  the 
working  population  had  brought  with  it  an  increasing  cost 
of  poor  relief  in  the  cities.  A  law  was  passed  in  1845  per- 
mitting the  communes  by  local  ordinance  to  require  all 
journeymen  and  work-assistants  to  join  and  contribute  to 
some  fund  giving  benefits  in  case  of  sickness. 

A  law  of  1849  extended  the  powers  of  the  communes  in 
this  scheme  of  optional  local  compulsion.  The  small 
independent  producers  could  be  required  to  contribute  to 
the  support  of  needy  journeymen  of  the  same  or  allied 
trades,  and  compulsion  to  contribute  could  be  extended  to 
cover  factory  workers.  Contributions  of  employers  of  an 
amount  equal  to  one  half  of  the  contributions  of  workers 
could  be  required.  The  employers  were  authorized  to 
advance  the  payments  and  to  deduct  the  contributions  of 
workmen  from  their  wages  at  the  next  pay  day.1  These 
provisions  established  precedents  for  the  division  of  cost 
and  of  collecting  premiums,  which  were  followed  in  later 
compulsory  legislation. 

The  most  complete  application  of  the  principle  of  com- 
pulsion prior  to  the  general  legislation,  is  to  be  found  in 
the  Prussian  law  of  1854  (later  adopted  in  the  general 
mining  code  of  1865)  regulating  organizations  in  the  mining 
industry.  The  formation  of  and  membership  in  miners' 
associations  was  made  compulsory  for  all  workmen  in 
mines,  quarries,  and  salt  works.  The  cost  was  met  by 
compulsory  contributions  from  members  and  from  employ- 
ers; the  latter  had  to  pay  an  amount  equal  at  least  to  one 
half  of  that  paid  by  the  workmen.     On  the  executive  bodies 

»  Handwdrterbuch,  1st  ed.  I.,   522. 


THE  DEVELOPMENT  OF  SOCIAL  INSURANCE       9 

employers  and  employees  were  equally  represented.  Bene- 
fits were  carefully  regulated.  Members  with  full  privileges 
were  entitled  to  medical  care  and  sick  pension,  or  a  life- 
long pension  in  case  of  invalidity.  If  death  resulted  from 
accident,  the  widow  was  granted  a  pension  together  with 
subsidies  for  the  education  of  children  under  fourteen 
years  of  age.  Members  with  partial  privileges  received 
medical  care  and  a  sick  pension  in  case  of  sickness,  and  an 
invalidity  pension  or  a  funeral  benefit  in  case  of  accident. 
The  payment  of  contributions  for  a  certain  number  of 
years  was  a  prerequisite  to  receiving  invalidity  or  old-age 
pensions,  and  as  a  rule  the  attainment  of  the  larger  benefits 
of  full  membership  was  limited  to  the  more  permanent 
portion  of  the  labor  force.1 

Besides  the  compulsory  organizations  in  the  mining  in- 
dustry and  the  funds  in  which  membership  might  be  locally 
required,  organizations  modeled  after  the  English  friendly 
societies  sprang  up.  Membership  in  these  funds  was 
voluntary.  Several  were  organized  as  early  as  1848,  among 
them  the  Book  Printers'  Association,  which  gave  benefits 
for  sickness  and  invalidity.2  Labor  unions  and  associa- 
tions of  the  Social-Democrats  adopted  benefit  systems.  A 
law  of  1869  (June  21)  exempted  workingmen  who  were 
enrolled  with  one  of  the  mutual  organizations  fr  m  the  neces- 
sity of  joining  a  local  sickness-insurance  fund.  In  1876, 
societies  were  distinguished  as  "registered"  and  "free"; 
for  the  former  maximum  and  minimum  limits  for  benefits 
were  prescribed  and  their  activities  were  restricted  to  offer- 
ing sickness  and  funeral  insurance.  The  actuarial  relation 
of  benefits  to  contributions  was  supervised.  Only  members 
of  registered  funds  were  to  be  freed  from  the  requirement 
to   insure  in  a  sickness  fund.3     The  socialist  agitation  in 

1  Handwdrterbuch,  3d  ed.,  I.   800  et  seq. 
*  lb.  801.     Also  1st  ed.,  I.   525-527. 
8  lb.  1st  ed.,  I.  526. 


IO  SOCIAL    INSURANCE 

1878  brought  on  severe  laws  against  the  free  mutual-aid 
societies  and  many  were  suppressed.1 

Insurance  under  this  system  of  private  initiative,  op- 
tional local  compulsion,  and  direct  compulsion  in  a  few 
industries,  was  not  by  any  means  general.  Comparatively 
few  of  the  communes  made  use  of  their  option.  By  the 
close  of  1853  only  226  communes  in  Prussia  had  required 
local  insurance,  and  only  58  of  these  levied  a  contribution 
on  the  employers.2  In  1868  there  existed  in  Prussia  a 
total  of  4700  funds  making  provision  for  sickness,  with 
690,000  members.  By  1874  there  were  nearly  800,000 
members  enrolled.  Besides  these,  the  compulsory  miners' 
associations  insured  235,000  members  and  railroad  funds 
had  66,000  more.  Altogether  there  were  nearly  1,100,000 
workers  insured  against  sickness  in  these  various  organiza- 
tions. Provision  for  old  age  was  much  less  general.  The 
miners'  funds  included  usually  benefits  for  superannuation 
and  infirmity,  but  gave  them  only  to  about  one-half  of  the 
total  membership.  Aside  from  these,  in  1876  166  funds 
with  a  membership  of  36,000  provided  specifically  for  old 
age  and  invalidity.  Death  benefits  were  given  by  5144 
death-benefit  associations  with  1,600,000  members.  Mixed 
funds  numbered  1095  with  172,000  enrolled.3 

W.  H.  Dawson  quotes  the  reports  of  several  cities  to  an 
inquiry  made  by  the  German  Poor  Law  Association4  on 
the  extent  of  insurance  prior  to  the  enactment  of  the  gen- 
eral compulsory  legislation.  Several  cities,  Bielefeld,  Col- 
mar,  Erfurt,  Halle,  Kaiserslautern,  and  others,  reported 
that  "a  large  part"  or  "the  major  part"  of   the  workers 

1  Handworterbuch,  3d  ed.,  I.  802. 

1  lb.  1st  ed.,  I.   522. 

3  lb.  1st  ed.,  I.  528.  Cf.  also  the  Bericht  der  VIII.  Kommis- 
sion  vom  26.  Juni  1879,  in  Sten.  Ber.  d.  Reichstags.  4.  Legisl.  Periode, 
II.  Session,  1879.  (Drucksachen  d.  Reichstags,  No.  314),  VI.  1170. 
The  margin  of  error  of  these  statistics  is  large,  and  the  figures  given  are 
probably  under  the  true  numbers. 

*  Deutscher  Verein  fur  Armenpflege  und  Wohltatigkeit. 


THE  DEVELOPMENT  OF  SOCIAL  INSURANCE       II 

were  insured  against  sickness.1  Only  three  small  towns 
mentioned  any  provision  for  old  age.2  In  the  mining  indus- 
try alone  was  insurance  general  and  compulsory.  Even 
here  the  fluctuating  character  of  the  labor  force  made  it 
difficult  to  enforce  compulsion,  and  only  those  regularly 
employed  were  insured  against  old  age.3 

The  situation  prior  to  the  compulsory  legislation  may  be 
summed  up  as  follows.  Only  a  part  of  the  working  class 
was  insured.4  The  principle  of  compulsion  was  recognized 
not  only  in  the  law  regulating  the  mining  associations  but 
also  in  the  local  ordinance  law.  Workmen  were  required 
to  insure;  compulsory  contributions  were  levied  on  the 
employers.  Workmen  in  the  mining  industry  under  com- 
pulsory insurance  were  most  adequately  protected.  Feasi- 
ble methods  of  enforcing  compulsion  had  been  discovered 
and  voluntary  insurance  had  proved  inadequate. 

The  development  of  social  insurance  in  Germany  has 
been  an  extension  of  the  principle  of  compulsion.  Insur- 
ance against  sickness  was  made  compulsory  by  a  law 
passed  June  15,  1883,  which  went  into  effect  December  1, 

1  Dawson,  Social  Insurance  in  Germany,  1883-iQii,  7-8. 

2  Zittau  (23,000  population  1890),  Schneeberg,  and  Hohenmolsen. 
Richard  Freund,  Armenpflege  und  Arbeiterversicherung,  in  Schriften  des 
Vereins  ftir  Armenpflege  und  Wohltatigkeit,  Heft  21. 

3  Keiner,  Die  Entwickelung  der  deutschen  Invaliden-  Versicherung,  5 
et  seq. 

4"Schon  um  die  Mitte  des  Jahrhunderts  erzielten  die  Bemuhungen 
des  preussischen  Handelsministers,  die  Gemeinden  zur  ortsstatuarischen 
Einfiihrung  des  Kassenzwangs  zu  bewegen,  nur  bescheidene  Erfolge, 
und  in  noch  geringerem  Masse  machte  man  spater  von  den  Befiignissen 
Gebrauch,  welche  die  Gewerbeordnung  und  das  G.  v.  y./W.  1878 
nach  dieser  Richtung  eingeraumt  hatten.  Aber  auch  die  freien  Hilfs- 
kassen,  die  allerdings  unmittelbar  nach  dem  Erlass  des  Hilfskassen- 
gesetzes  einen  gewissen  Aufschwung  nahmen,  bald  jedoch,  soweit 
Schopfungen  der  sozialdemokratischen  Partei,  auf  Grund  des  Sozialis- 
ten-G.  v.  21./X.  1878  grossenteils  dem  Schicksal  der  Auflosung  verfielen, 
umfassten  immerhin  nur  einen  geringen  Prozentsatz,  vorzugsweise  die 
materiell,  sozial  und  geistig  vorgeschrittene  Elite  der  arbeitenden  Bevol- 
kerung."     Handworterbuch,  3d  ed.,  I.   802. 


12  SOCIAL   INSURANCE 

1884.  It  was  followed  shortly  after  by  the  Accident 
Insurance  Law  of  July  6,  1884,  in  effect  October  1,  1885, 
applying  to  a  few  of  the  more  hazardous  industries.  Sub- 
sequent laws  extended  the  scope  of  the  insurance  till  prac- 
tically all  workingmen  in  all  occupations  were  under  the 
provisions  of  the  acts.  In  1889  was  passed  the  Old-age 
and  Invalidity  Insurance  Law,  which  went  into  effect  in 
1891.  The  revision  of  191 1  consolidated  the  three  branches 
of  insurance  into  a  unified  system,  and  added  to  the  invalid- 
ity insurance  provision  for  surviving  invalid  widows  and 
dependent  children.  A  new  law  of  191 1  prescribed  com- 
pulsory insurance  of  salaried  employees  against  old  age 
and  invalidity.1 

The  division  of  burden  between  employer  and  employees 
followed  the  precedents  which  had  already  been  established. 
Accident  costs  were  laid  almost  entirely  on  the  employer. 
Sickness  insurance  was  collected  one  third  from  the  em- 
ployer and  two-thirds  from  the  workmen,  following  the 
division  of  the  laws  of  1845,  1849  and  1854.  Employers 
and  employees  were  required  to  contribute  equal  shares 
to  the  cost  of  invalidity  and  old  age  insurance;  a  subsidy 
of  a  fixed  amount  being  added  to  each  pension  from  the 
State  treasury. 

Social  insurance  legislation  in  some  form  has  been  enacted 
in  almost  all  of  the  important  industrial  nations.  Condi- 
tions in  the  other  industrial  countries  have  developed  as 
they  have  in  Germany.  Social  insurance  has  spread  rapidly 
with  the  recognition  of  the  needs  of  the  laboring  class. 

Accident  insurance  laws  have  been  most  widely  enacted. 
All  of  the  European  countries  except  Turkey  have  adopted 
some  scheme  of  workmen's  compensation,  and  Australia, 
Japan  and  other  states  have  followed.     Table  I  shows  the 

1  For  a  good  general  account  of  the  German  insurance  system,  cf. 
Dawson,  Social  Insurance.  Also  Arbeiterversicherung  (Deutchland), 
Invalidenversicherung,  Unfallversicherung,  and  Krankenversicherung,  in 
Handworterbuch,  3d  ed.    Cf.  Manes,  Sozialversicherung,  etc. 


THE  DEVELOPMENT  OF  SOCIAL  INSURANCE 


13 


date  of  adoption  of  accident  insurance  laws  in  the  different 
countries. 


TABLE   I 

DATES   OF   ENACTMENT   OF   FOREIGN   COMPENSATION   LAWS  1 


Country 


Germany 

Austria 

Norway 

Finland 

Great  Britain 

Denmark 

Italy 

France 

Spain 

New  Zealand 

South  Australia 

Netherlands 

Greece  (mining,  quarry- 
ing, metallurgy,  etc. 
only) 

Sweden 

Western  Australia 

Luxemburg 

British  Columbia 

Russia 

Belgium 

Cape  of  Good  Hope 


Date  of 
Enact- 
ment of 
Original 
Law 


Country 


1887 
1894 

1895 
1897 
1898 
1898 
1898 
1900 
1900 
I9OO 
I9OI 


1901 
1901 
1902 
1902 
1902 
1903 
1903 
1905 


Queensland 

Venezuela  (mining  only) 

Mexico 

Hungary 

Transvaal 

Newfoundland 

Alberta 

Bulgaria 

Quebec 

Manitoba 

Nova  Scotia 

Liechtenstein 

Servia 

New  South  Wales 

Tasmania 

Peru 

Montenegro 

Japan 

Switzerland 

Roumania 

Portugal 


Date  of 
Enact- 
ment of 
Original 
Law 


1905 
1906 
I906 
I907 
1907 
I908 
1908 
I908 
I909 
1910 
I9IO 
1910 
I9IO 
1910 
I9II 
I9II 
I9II 
19II 
1912 
1912 
1913 


1  United  States  Bureau  of  Labor  Statistics,  Bulletin,  Whole  Number 
126  (Workmen's  Insurance  Compensation  Series  No.  5),  Workmen's 
Compensation   Laws   of  the    United   States  and  Foreign  Countries,  132. 

Compulsory  sickness  insurance  laws  covering  either  all 
of  the  working  class  or  limited  in  application  to  certain 
occupations  have  been  passed  in  Germany,  1884;  Austria, 


14  SOCIAL    INSURANCE 

1888;  Hungary,  1891;  Norway,  1909;  Servia,  1910;  Great 
Britain,  191 1;  and  Russia,  1912.  France,  Belgium,  Den- 
mark, Sweden,  and  Switzerland  have  voluntary  subsidized 
sickness  insurance. 

Compulsory  insurance  against  invalidity  and  old  age  went 
into  effect  in  Germany  in  1891.  The  Austrian  law  of  1906 
required  insurance  of  salaried  employees.  France  enacted 
in  1910  a  law  compelling  workmen  to  insure  against  old 
age.  A  compulsory  law  was  passed  in  Sweden  in  19 13 
requiring  contributions  from  practically  the  entire  adult 
population.  Old-age  or  invalidity  insurance  is  required 
for  workmen  in  a  few  industries  in  Hungary,  Roumania, 
and  Italy.  Old-age  pensions  have  been  granted  by  the 
state  to  deserving  aged  poor  in  Denmark  since  1891.  New 
Zealand  enacted  an  old-age-pension  law  in  1898,  New 
South  Wales  in  1900,  Victoria  in  1901,  the  Commonwealth 
of  Australia  in  1908.  A  French  law  of  1906  gave  pensions 
to  the  aged  poor,  and  Great  Britain,  under  the  leadership  of 
Lloyd -George,  enacted  in  1908  an  old-age-pension  law. 
No  contribution  of  any  kind  is  required  from  the  pensioned 
class.  Voluntary  subsidized  old-age-insurance  systems 
are  organized  in  Italy,  Belgium,  Servia,  Spain,  and  New 
Zealand. 

The  mere  enumeration  of  the  countries  which  have 
adopted  measures  of  social  insurance  is  impressive.  It 
does  not  indicate,  however,  whether  the  legislation  is  com- 
plete or  partial  in  its  application.  It  does  not  show  whether 
all  or  only  a  part  of  the  working  class  is  protected  by  the 
operation  of  these  laws.  The  Imperial  Insurance  Office  of 
Germany  has  compiled  estimates  for  the  countries  of  Europe 
of  the  numbers  of  the  wage-workers  and  the  numbers  of 
those  insured  against  the  various  contingencies.1     The  esti- 

1  Die  Sozialversicherung  in  Europa  nach  dent  gegenwartigen  Stande  der 
Gesctzgebung  in  den  verschiedenen  Staaten,  in  Sonderbeilage  turn  Reichs 
Arbeitsblatte,  No.  12  (Dec.  1912.     Erganzter  Neudruck,  Jan.  1913). 


THE   DEVELOPMENT   OF  SOCIAL   INSURANCE  15 

mates  distinguish  those  making  voluntary  provision  as  well 
as  those  covered  by  compulsory  legislation.  The  figures 
are  given  in  Table  II. 

Germany,  with  its  compulsory  insurance  for  accident, 
sickness,  invalidity,  and  old  age,  shows  to  best  advantage, 
with  nearly  the  entire  working  population  insured.  Great 
Britain  is  a  close  second,  the  main  difference  being  that  the 
proportion  of  the  population  insured  against  accidents  is 
smaller  there  than  it  is  in  Germany.  The  estimates 
show  that  a  much  larger  and  more  general  provision  is 
made  for  industrial  accidents  than  for  sickness,  and  that 
provision  for  the  latter  is  more  general  than  for  either  inva- 
lidity or  old  age.  Compulsory  insurance  means  that  a  much 
greater  proportion  of  the  total  population  or  of  the  working 
class  is  insured  than  under  voluntary  or  even  subsidized 
voluntary  effort.  It  is  to  be  remarked,  however,  that  the 
figures  are  not  quite  comparable.  Voluntary,  or  friendly, 
mutual  aid  societies,  etc.,  are  apt  to  include  many  above 
the  working  class  level,  who  would  not  be  required  to 
insure  under  a  compulsory  system.  The  figures  for  com- 
pulsory insurance  therefore  may  be  applied  to  the  working- 
class  population  without  the  reservations  that  have  to  be 
made  in  case  of  voluntary  sickness  provision.  On  the 
other  hand  the  figures  for  voluntary  provision  are  probably 
more  difficult  to  obtain  and  omissions  would  be  more  likely 
to  occur  than  in  compulsory  insurance. 

France,  Great  Britain,  Denmark,  and,  outside  of  Europe, 
Australia  and  New  Zealand,  give  old-age  pensions  or 
assistance  to  deserving  aged  persons  without  previous 
contribution  of  any  kind.  The  number  of  old-age  pensions 
cannot  be  compared  to  the  entire  working  population  to 
give  intelligible  results;  the  extent  of  such  aid  can  best  be 
measured  by  the  proportion  of  the  aged  population  in 
receipt  of  pensions.  In  England  and  Wales  in  191 1,  57 
per  cent  of  the  population  over  70  years  of  age  received 


i6 


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THE  DEVELOPMENT  OF  SOCIAL  INSURANCE       1 7 

Finland.     98,200  "full-time  workers."     2500  seamen.     (1909) 

2  France.  250,000  insured  compulsorily  in  State  Institution  for  Sea- 
men. 4,000,000,000  marks  wages  insured,  "voluntarily"  (i.e.,  by  em- 
ployers) roughly  4,000,000  workers.  Cf.  estimate,  Workmen's  Compen- 
sation Laws  of  the  United  States  and  Foreign  Countries,  in  Bulletin  of  U.  S. 
Bureau  of  Labor  Statistics,  No.  126,  133. 

3  Great  Britain.  "About  13,000,000  persons  to  be  insured"  (work- 
men's compensation  with  voluntary  insurance). 

4  Netherlands.  89,619  establishments  insured.  500,000  workers 
estimated:  Germany  with  6,200,000  establishments  had  24,600,000  in- 
sured; Austria  with  546,000  establishments  had  3,710,000  insured; 
Luxemburg  with  2503  industrial  establishments  had  36,701  insured. 

5  About  180,000  persons  subject  to  insurance.  Compulsory  law  passed 
recently. 

6  Sweden.  Of  400,000  workers  covered  by  the  law  (voluntary)  about 
250,000  are  insured. 

7  Switzerland.  About  700,000  persons  subject  to  insurance.  Law 
passed  recently,  191 1. 

8  France.  205,000  miners  insured  under  compulsory  law.  4,400,000 
members  of  mutual  aid  societies,  exclusive  of  500,000  honorary  members. 

9  Germany.  After  the  Second  Book  of  the  Social  Insurance  Code  of 
191 1  goes  into  effect(  Jan.  1,  1914),  about  20,000,000  insured. 

10  Great  Britain.  More  accurate  statistics  wanting.  About  14,- 
700,000. 

11  Roumania.  About  140,657  persons  to  be  insured  under  new  law  of 
1912. 

12  Russia.  About  2,500,000  persons  to  be  insured  under  the  new  law 
to  go  into  effect  in  1914. 

13  Switzerland.  About  800,000  persons  insurable.  Compulsory  in- 
surance can  be  required  locally  by  cantons  and  communes. 

14  Belgium.  5600  mutual  aid  societies  with  1,100,000  members 
providing  against  old  age.  40,000  pensions  current  1909.  Old-age- 
pension  institution.  68  associations  with  145,000  members  give  in- 
validity benefits. 

15  France.  1,900,000  accounts  of  depositors  in  the  State  Old-Age 
Pension  Institution,  with  325,500  pensions  current,  1910.  599,061 
persons,  aged,  and  invalid,  infirm  and  incurable  aided,  Dec.  31,  1910, 
by  state  pensions.  Besides  111,229  aided  under  law  of  April  5,  1910, 
aged  65-69  years  (assistance-retraites).  Annuaire  statistique  (France), 
XXXII.  59  (1912). 

16  Germany.  Besides  2,000,000  to  be  insured  under  insurance  law 
for  salaried  employees,  191 1. 

3 


1 8  SOCIAL   INSURANCE 

pensions  up  to  5  shillings  a  week.  In  Ireland  68.4  per  cent 
of  the  population  over  70  were  pensioned.1  Australia 
pensioned  34  per  cent  of  the  population  over  65, -  New 
Zealand  33.6  per  cent.3  France  assisted  nearly  21  per  cent 
of  the  aged  over  70  with  a  small  pension.4     A  very  large 

1  Of  the  population  over  70  in  191 1  in  England  and  Wales  (1,071,702), 
613,873  received  pensions.  This  is  exclusive  of  a  large  almshouse  popu- 
lation. Population  over  70  in  Ireland  in  191 1  was  295,027,  of  whom 
201,783,  or  68.4  per  cent,  were  pensioned.  Cf.  Parliamentary  Papers, 
Cd.  6462,  Third  Report  of  the  Commissioners  of  His  Majesty's  Customs 
and  Excise,  for  the  Year  ended  31st  March,  1912,  81;  Census  of  England 
and  Wales,  191 1,  VII.  1-2,  figures  from  table;  Census  of  Ireland,  191 1, 
General  Report  with  Tables  and  Appendix,  xxv.  The  grant  of  pensions 
in  Ireland  caused  a  singular  change  in  the  reported  age  distribution  of  the 
population.  People  had  been  understating  their  ages.  More  people  were 
found  to  be  over  70  in  the  first  year  of  the  passage  of  the  act  than  had 
been  estimated  to  be  of  that  age  in  the  island  from  the  returns  of  the 
previous  censuses.  Cf.  Cd.  6663,  xxv  (1912-13);  also  Mass.  Report  of 
the  Commission  on  Old  Age  Pensions,  Annuities,  and  Insurance,  98-99 
(1910). 

2  Australia.  On  June  30,  1910,  there  were  65,492  pensioners  over  65; 
Apr.  3,  191 1,  190,583  population  over  65  (except  full-blooded  aborigines). 
Cf.  Parliamentary  Papers,  Cd.  6400,  199.  Also,  Official  Year  Book  of 
the  Commonwealth  of  Australia,  VII.    119  (1914). 

3  The  New  Zealand  Official  Year-Book,  896,  892,  and  126  (1912). 
In  191 1  16,020  persons  were  pensioned  out  of  a  population  over  65  of 
47,700,  or  33.6  per  cent. 

4  Of  an  estimated  population  over  70  of  1,925,000  in  1911,  389,811, 
nearly  21  per  cent,  were  assisted.  Statistique  generate  de  la  France, 
Annuaire  statistique,  XXXII.  59,  7  (1912);  XXVI.  7  (1906).  The  popu- 
lation over  70  for  191 1  is  estimated  on  the  basis  of  the  increase  of  the 
population  over  70  from  1901  to  1906. 


17  Great  Britain.  More  accurate  information  wanting.  Compulsory 
insurance  against  invalidity  is  part  of  sickness  insurance.  908,000 
old-age  pensioners,   1910. 

18  Roumania.  About  100,000  workmen  to  be  insured  under  com- 
pulsory law  of  1912. 

19  Sweden.  Estimate  of  Swedish  commission.  Cf.  Reichsarbeits- 
blatt,Xl.  858  (1913)- 


THE  DEVELOPMENT  OF  SOCIAL  INSURANCE       1 9 

proportion,  therefore,  of  the  aged  workers  are  cared   for 
under  these  state-pension  schemes.12 

In  the  United  States  social  insurance  has  gained  little 
actual  realization.  More  has  been  accomplished  in  accident 
compensation  than  along  other  lines.  In  thirty-one  states 
workmen's  compensation  laws  are  in  force  providing  for 
compensation  by  compulsory  insurance  of  employees  or 
by  elective  insurance  with  the  alternative  of  abrogation 
of  the  main  defenses  of  the  employer  under  the  common 
law  rules.  These  laws  are  subject  to  review  by  the  courts, 
which  may  declare   them  contrary  to  the  constitution  of 

1  Cf.  the  discussion  and  the  rough  estimates  of  Rubinow,  Social  In- 
surance, 378-379. 

2  Comparison  of  these  data  with  the  proportion  of  aged  persons  pen- 
sioned in  Germany  under  compulsory  insurance  is  possible  only  by 
estimate.  The  law  in  Germany  is  directed  to  relieving  the  distress  of 
invalidity  rather  than  to  that  of  old  age.  No  statistics  of  invalid  pen- 
sioners showing  the  age  distribution  are  published.  Consequently 
there  is  no  way  of  comparing  pensioners  over  70  with  the  population 
over  70,  except  by  estimating  the  proportion  of  invalidity  pensioners  over 
70.  In  1891  132,926  old-age  pensions  were  granted,  covering  9.6  per 
cent  of  the  population  over  70.  Practically  no  invalidity  pensions  were 
granted  the  first  year.  The  number  of  old-age  pensions  at  the  beginning 
of  the  year  rose  in  1897  to  203,955,  nearly  double  the  number  granted 
the  first  year,  and  declined  to  93,369  in  1912.  The  decline  is  due  to  the 
fact  that  many  of  those  over  70  now  apply  for  and  receive  invalidity 
pensions,  as  these  are  now  larger  on  the  average  than  the  old-age  pen- 
sions. On  Dec.  31,  191 1,  there  were  940,875  invalidity  pensions  cur- 
rent. Of  114,755  new  invalidity  pensions  granted  in  1910,  13,866  were 
given  to  persons  70  and  over,  or  12  per  cent.  In  1910,  in  Berlin,  6609 
out  of  30,721  invalidity  pensions  current  were  received  by  persons  70  and 
over.  Assuming  that  20  per  cent  of  all  invalidity  pensioners  were  over 
70,  there  were  approximately  16  per  cent  of  the  population  over  70 
of  Germany  pensioned.  If  40  per  cent  of  the  invalidity  pensioners  were 
70  and  above,  there  would  be  about  26  per  cent  of  the  aged  persons  pen- 
sioned. Apparently  a  much  smaller  proportion  of  the  aged  receive  a 
pension  in  Germany  than  in  Great  Britain  or  in  Australia  or  New  Zea- 
land. Cf.  Dawson,  Social  Insurance,  158-9;  Amtliche  Nachrichten  des 
Reichs-Versicherungsamts,  XXVIII.  No.  2,  1,  281  (Feb.  1912);  Statis- 
tisches  Jahrbuch  der  Stadt  Berlin,  XXXII.  532. 


20  SOCIAL    INSURANCE 

the  state  or  of  the  national  government.  The  constitutions 
of  the  states  have  been  amended  in  some  cases  so  as  partly 
to  obviate  these  difficulties.  But  a  decision  of  a  state  court 
declaring  a  state  law  void  on  grounds  of  incompatibility 
with  the  national  constitution  is  not  subject  to  review  by 
the  federal  courts. 

Practically  no  attempt  has  been  made  to  secure  social  in- 
surance against  sickness  or  invalidity.1  Beginnings  have 
been  made  in  insurance  against  old  age  in  thecaseof  teachers 
and  of  certain  government  employees.2  Pensions  of  the  na- 
tional government  take  care  of  aged  veterans  of  the  Civil 
War,  but  make  no  specific  provision  for  the  aged  working- 
man.3 

The  remarkable  spread  of  the  idea  of  social  insurance 
throughout  all  the  principal  industrial  countries  of  Europe 
and  the  beginnings  of  agitation  in  the  United  States 
point  to  the  eventual  adoption  of  the  idea  in  some  form. 
If  the  results  of  the  system  are  good,  if  it  is  a  step  forward 
in  social  justice,  if  its  advantages  are  greater  than  its  disad- 
vantages, its  introduction  into  the  United  States  is  only  a 
question  of  time. 

1  Cf.  Rubinow,  Social  Insurance,  281-298,  for  a  discussion  of  this 
question. 

2  lb.   391-412.     Cf.  Squier,  Old  Age  Dependency  in  the  United  States, 

53-235- 

*  Estimating  that  60  per  cent  of  the  recipients  of  pensions  of  the 
United  States  government  are  65  and  over,  there  were  500,000  pen- 
sioners in  a  population  of  3,949,000  in  1910,  or  13  per  cent  of  the  popu- 
lation over  65  were  pensioned.  That  this  estimate  is  fairly  reasonable 
is  shown  by  the  fact  that  15.4  per  cent  of  the  population  over  65  in 
Massachusetts  are  pensioners.  See  data  of  the  Mass.  Report  of  the 
Commission  on  Old  Age  Pensions,  22  (1910).  Rubinow  thinks  that 
these  are  not  the  part  of  the  aged  population  most  in  need  of  pensions. 
Op.  cit.  408.  Cf.  Report  of  the  Commissioner  of  Pensions,  1910,  in  Re- 
port of  the  Department  of  the  Interior,  1910.  Administrative  Reports, 
I.  146  et  seq. 


CHAPTER   II 

VOLUNTARY    VERSUS    COMPULSORY    INSURANCE    IN    THE 
UNITED    STATES 

The  review  of  the  historical  development  of  social  insur- 
ance legislation  in  Germany  and  its  spread  in  other  lands 
has  shown  the  strength  of  the  movement.  Its  fundamental 
causes  lay  in  changes  in  industry  and  the  development  of 
a  working  class.  A  transformation  of  industry  similar  to 
that  in  England  and  Germany  has  been  taking  place  in  this 
country.  The  question  is  therefore  presented,  Is  a  devel- 
opment of  insurance  legislation  in  the  United  States  on  the 
model  of  English  and  German  laws  desirable?  Is  it  advisa- 
ble to  substitute  a  system  of  compulsory  social  insurance 
for  individual  and  voluntary  provision  against  sickness,  acci- 
dent, and  superannuation? 

The  problem  may  be  attacked  in  two  different  ways. 
We  may  accept  European  experience  as  conclusive  for 
European  conditions  and  inquire  if  conditions  in  the  United 
States  are  sufficiently  different  to  warrant  a  different  pro- 
cedure. Or  we  may  approach  directly  the  special  problems 
of  the  United  States  and  arrive  at  our  own  conclusions 
independently  and  without  especial  reference  to  conditions 
abroad. 

The  first  method  suggests  at  once  the  difference  between 
European  and  American  conditions.  America  is  a  new 
country  with  a  wealth  of  undeveloped  resources.  We  are 
still  predominantly  agricultural.  Until  recently  there  has 
been  a  surplus  of  free  land  available.  England,  Belgium, 
parts  of  France  and  Germany  are  highly  industrial.  It  is 
only  in  our  eastern  manufacturing  states  and  in  our  mining 
states  that  industrial  conditions  similar  to  those  of  Europe 
are  found  and  that  a  permanent  working  class  has  begun  to 


22  SOCIAL   INSURANCE 

be  formed.  This  contrast  between  American  and  European 
conditions  may  help  to  explain  why  American  social  insur- 
ance legislation  has  been  late  in  starting.  The  existence  of 
the  frontier  and  the  availability  of  free  land  have  fostered  a 
vigorous  individualistic  spirit.  Accident-compensation  leg- 
islation has  been  retarded  by  the  difficulty  of  constitution- 
ality. Legislation  on  old-age  pensions  has  hardly  been  so 
urgent  here  as  abroad.  The  present  aged  population,  a 
much  smaller  proportion  of  the  total  than  in  most  European 
countries,1  is  comparatively  well  off,  especially  in  the  agri- 
cultural states — a  condition  to  which  the  ease  of  acquiring 
land  may  have  contributed.  In  Massachusetts  only  31.7 
per  1000  of  the  population  over  65  were  in  receipt  of  relief 
(1909)2  as  compared  with  172.0  per  1000  in  England.  The 
treatment  of  the  negro  problem  in  the  Southern  states  offers 
certain  peculiar  difficulties.  Finally,  the  whole  level  of 
wages  and  of  standards  of  living  is  considerably  higher  in 
America  than  in  European  countries. 

Other  striking  differences  could  be  pointed  out  and  dis- 
cussed. But  a  satisfactory  solution  of  the  problem  may 
be  reached  only  by  a  direct  study  of  our  own  problems.  In 
the  mining  and  manufacturing  states  we  have  a  large  and 
increasing  body  of  workers  the  majority  of  whom  can  never 
expect  to  achieve  economic  independence.  Rubinow  esti- 
mates, on  the  basis  of  computations  made  by  I.  A.  Hour- 
wich,  that  out  of  29,000,000  persons  "gainfully  occupied"  in 
1900  there  were  15,000,000  wage-earners,  of  whom  nearly 
two  thirds  were  workers  employed  in  industry.3  Conditions 
here  are  beginning  to  approximate  European  conditions. 
These  workmen  and  their  families  need  to  be  protected 
against  sudden  fluctuations  of  income  by  reason  of  acci- 

1  In  1900  6.4  per  cent  of  the  population  of  the  United  States  were 
over  60;  in  England  and  Wales,  7.4  per  cent;  in  Sweden,  1 1.5  per  cent; 
in  France,  12.5  per  cent. 

1  Massachusetts,  Report  of  the  Commission  on  Old  Age  Pensions,  Annu- 
ities and  Insurance,  44  (Jan.  19 10). 

1  Rubinow,  Social  Insurance,  29. 


VOLUNTARY   AND   COMPULSORY   INSURANCE  23 

dent,  sickness,  and  old  age.  Can  such  protection  be  se- 
cured under  American  conditions  by  voluntary  and  indi- 
vidual provision? 

The  end  to  be  achieved  is  commendable.  If  protection  is 
left  to  individual  initiative,  whether  or  not  a  workman  will 
insure  depends  upon  his  appreciation  of  the  need  and  upon 
his  financial  ability  to  carry  out  his  good  intentions.  The 
average  worker  probably  does  not  concern  himself  seriously 
with  the  uncertain  contingencies  of  the  future ;  present  nec- 
essities are  too  immediate  and  too  pressing  to  permit  ex- 
penditure on  future  objects.  The  worker  is  not  an  "eco- 
nomic man"  who  settles  his  expenditures  by  reason.  Pres- 
ent enjoyments  loom  larger  in  the  mind  of  the  wage-earner 
than  possible  future  suffering. 

Even  if  the  worker  has  good  intentions,  financial  circum- 
stances will  often  prevent  them  from  being  carried  out. 
The  surplus  of  receipts  over  expenses  varies  greatly  at 
different  periods  of  life  of  the  average  workman.  During  a 
period  of  surplus,  some  part  of  it  may  be  used  for  insur- 
ance against  loss  of  income ;  but  when  the  pinch  comes,  the 
insurance  is  likely  soon  to  be  given  up.  The  proportion  of 
lapses  among  industrial  policy  holders1  is  much  greater  than 

'"In  1901  the  three  large  industrial  insurance  companies  which  do 
over  95  per  cent  of  the  whole  industrial  insurance  business  in  this  coun- 
try had  12,522,000  policies  in  force.  By  the  end  of  191 1  the  number 
increased  to  22,760,000,  an  increase  of  some  10,338,000  policies.  But 
during  the  same  ten  years  38,593,000  policies  were  written.  Even 
assuming  a  uniform  mortality  of  25  per  1000,  which  is,  of  course,  very 
much  too  high,  and  an  average  of  16,000,000  policies  in  force  during 
the  ten-year  period,  or  4,000,000  deaths,  it  will  leave  over  24,000,000 
policies  unaccounted  for — most  of  them  discontinued  through  irregu- 
larity of  payment  of  the  weekly  premiums.  Thus,  in  63  per  cent  of  all 
cases  the  agent  system  proves  ineffective,  which  is  a  worse  showing  than 
the  voluntary  system  makes  in  some  European  countries."  Rubinow, 
Social  Insurance,  421. 

The  24,000,000  lapses  should  be  compared  to  the  sum  of  the  new 
policies,  38,593,000,  and  those  in  force  at  the  beginning  of  the  period, 
12,522,000,  to  get  a  percentage  of  lapses.  This  gives  approximately 
48  per  cent  of  lapses. 


24  SOCIAL   INSURANCE 

in  ordinary  life  insurance,  on  account  of  the  very  narrow 
margin  of  surplus  and  on  account  of  the  pressure  of  present 
wants  upon  the  workingman. 

That  the  average  workman  is  little  capable  of  continued 
thrift  without  supervision  is  shown  by  the  methods  adopted 
by  industrial  life  insurance  companies  in  collecting  pre- 
miums. Agents  are  sent  to  call  each  week  to  collect  drib- 
lets of  surplus  earnings.  An  obligation  assumed  will  not 
be  met  unless  the  workman  is  constantly  reminded  of  it 
and  unless  it  is  brought  to  his  attention  as  a  payment  that 
must  be  met.  By  the  method  of  collection  he  is  brought 
to  realize  that  the  insurance  must  be  paid  before  other 
expenses  are  reckoned.  His  resolution  must  be  kept  up 
to  the  point  of  action  by  weekly  visits.1  The  expense  of 
this  method  of  collection  can  be  justified  from  the  point  of 
view  of  the  insurance  company  on  the  ground  that  it  is 
necessary.  That  it  is  necessary  shows  at  once  the  diffi- 
culty of  voluntary  insurance  among  workmen.  By  the 
irony  of  fate,  the  cost  of  administrative  expenses  including 
collection  amounts  to  approximately  40  per  cent  for  indus- 
trial2 as  against  20  per  cent,  more  or  less,  for  insurance  of 
the  middle  classes.  Insurance  of  this  kind  looks  like  a 
costly  luxury  for  the  wage-worker. 

Probably  almost  any  workman  can  be  persuaded  of  the 
desirability  of  insurance  against  accident,  sickness,  or  old 
age,  as  an  abstract  proposition,  by  a  skilful  and  persuasive 
agent.  The  dangers  and  the  risks  of  not  insuring  can  be 
portrayed  without  stretching  truth  and  be  made  a  most 
convincing  argument  for  insurance.  The  success  of  volun- 
tary provision  depends  then  upon  the  degree  of  resolution 
with  which  the  average  workingman  can  be  induced  to 
persevere   in  his  efforts.     In  securing   this    perseverance, 

1  "The  small  saving  power  of  this  class  is  shown  in  the  failure  of  every 
attempt  at  having  the  payment  periods  as  far  apart  as  a  month."  Ham- 
ilton, Savings  Banks  and  Savings  Institutions,  94,  note. 

1  Rubinow,  Social  Insurance,  425. 


VOLUNTARY   AND   COMPULSORY    INSURANCE  25 

the  methods  of  collection  and  the  form  of  organization 
are  the  essential  factors  of  success. 

Workmen  may  insure  individually  in  industrial  or  acci- 
dent insurance;  they  may  join  fraternal  organizations;  or 
they  may  make  mutual  provision  through  trade  unions  or 
mutual  societies.  In  each  case  the  degree  of  tacit  compul- 
sion is  the  degree  of  success.  The  success  of  industrial  in- 
surance is  due  to  the  system  of  persistent  collection,  which 
compels  the  workman  to  provide  first  for  his  insurance  out 
of  his  weekly  earnings.  Where  lapses  occur,  it  is  because 
the  compulsion  is  not  strong  enough;  the  appreciation  of 
the  need  has  weakened  under  the  realization  of  the  cost. 
In  the  trade  union  and  in  mutual  labor  organizations,  the 
men  are  held  together  by  a  common  purpose  of  maintain- 
ing wages  and  making  collective  contracts.  Contributions 
made  to  the  general  treasury  and  used  largely  for  accident 
and  sick  benefits  are  an  additional  bond  of  strength,  but 
the  success  of  the  benefit  features  is  due  to  their  secondary 
character.  A  very  real  compulsion  is  exercised  upon  the 
membership  for  dues,  including  the  contributions  for  insur- 
ance.    Usually  these  dues  are  collected  at  short  intervals. 

Voluntary  individualistic  effort  will  undoubtedly  meet 
with  partial  success  in  insuring  and  providing  for  a  part  of 
the  working  class.  Some  will  be  insured  against  all  contin- 
gencies, others  against  some  particular  ones  which  appeal 
most  strongly  to  them.  The  remainder,  a  smaller  or  larger 
portion,  depending  on  wages  and  on  the  general  level  of 
intelligence,  will  remain  unprovided  for. 

How  much  has  voluntary  insurance  accomplished  in  the 
United  States?  What  proportion  of  the  working  popula- 
tion is  insured  against  accident,  sickness,  or  old  age? 

Industrial  insurance,  that  is  insurance  providing  for 
funeral  expenses  and  a  little  besides,  is  widespread.  Ru- 
binow  gives  figures  for  the  extent  of  industrial  insurance 
in  the  United  States  for  191 1.     In  32  companies,  24,708,499 


C6  SOCIAL   INSURANCE 

policies  were  in  force,  with  a  total  amount  of  insurance  of 
$3,423,790,536.  Nearly  27  per  cent  of  the  population  of 
the  United  States  were  carrying  industrial  insurance.  The 
average  amount  of  the  policies,  in  i88i,was  $91;  in  1891, 
$112;  in  1901,  $133;  and  in  1911,  $138. '  The  success  of 
this  form  of  insurance  is  due  to  the  active  campaign  for 
the  extension  of  such  insurance  on  the  part  of  the  industrial 
insurance  companies,  to  the  regular  weekly  collection  of 
premiums,  and  to  the  acceptance  by  the  workingmen  of 
funeral  insurance  as  a  part  of  the  standard  of  a  decent 
living.  But  it  cannot  be  considered  a  success  from  every 
point  of  view.  The  cost  of  administration  and  collection 
absorbs  relatively  a  very  large  proportion  of  the  total  pre- 
mium receipts.  Two  fifths  of  the  premiums  collected  must 
be  paid  for  expenses  of  securing  and  managing  the  business. 
A  very  large  number  of  lapses  take  place  in  spite  of  the 
system  of  regular  collection.  From  the  figures  and  esti- 
mates of  Rubinow,  48  per  cent  of  all  the  industrial  policies 
lapse.2 

Besides  industrial  insurance  companies,  workingmen  are 
protected  by  insurance  through  trade-union  and  establish- 
ment funds  and  in  fraternal  and  mutual  aid  associations. 
A  report  of  the  Commissioner  of  Labor  contains  statistics 
of  death  benefits  given  by  workingmen's  insurance  and 
benefit  funds.  All  the  national  unions  that  had  any  bene- 
fit features  paid  death  benefits.  Seventy-nine  unions,  with 
a  membership  of  approximately  1,300,000,  paid  $5,071,470 
in  death  benefits  in  one  year.3  Nearly  four  fifths  of  this 
was  paid  out  by  ten  railroad  unions  for  2621  deaths.4  These 
railroad  unions  pay  substantial  amounts,  the  average  being 
about  $1500.     The  other  national  unions  give  only  nominal 

1  Rubinow,  Social  Insurance,  418-419. 

2  II).  421,  Cf.  supra,  23,  note. 

3  Workmen's  Insurance  and  Benefit  Funds  in  the  United  States,  in 
Twenty-third  Report  of  the  Commissioner  of  Labor,  31  (1908).  The  mem- 
bership is  estimated  from  the  number  of  deaths  and  the  death  rates. 

4  Calculated  from  table,  ib.  48-51. 


VOLUNTARY   AND   COMPULSORY    INSURANCE  2"] 

sums,  practically  funeral  benefits.  The  average  amount 
paid  (7200  cases)  was  approximately  $150.  Local  unions 
with  135,000  members  gave  small  death  benefits.  Thirty- 
four  railroad  relief  funds  insured  another  300,000;  bene- 
fits in  one  half  of  these  were  fairly  substantial;  in  the 
other  half  they  ranged  from  $50  to  $400.  Four  hundred 
and  nineteen  establishment  funds  had  a  membership  of 
over  300,000  workers.  In  these  different  organizations 
there  are  over  two  million  workingmen  insured. 

Fraternal  societies  had  in  191 1  ten  million  life  policies 
outstanding.1  Rubinow  estimates  that  not  over  one  half 
belonged  to  the  working  class  or  to  the  class  of  salaried 
employees.2 

Altogether,  a  very  large  proportion  of  the  working  popu- 
lation have  made  some  provision  for  meeting  funeral  ex- 
penses and  providing  a  sum  to  meet  the  immediate  need 
of  the  family  after  the  death  of  the  wage  earner.  The 
amounts  received  are  in  most  cases  small. 

Insurance  against  accident,  sickness,  and  old  age  is  not 
so  well  developed.  Rubinow  gives  estimates  of  the  extent 
of  provision  for  sickness  among  workmen  in  the  United 
States.  Many  of  the  national  and  local  unions  have  bene- 
fit features,  and  a  small  proportion  give  benefits  for  tem- 
porary disability.  In  the  benefit  funds,  establishment 
funds,  and  railroad  funds  others  are  insured  against  sick- 
ness; in  these  and  in  unions  a  total  of  approximately 
1,130,000  workmen  are  insured.3  A  total  of  approximately 
$4,480,000  was  paid  out  in  benefits  in  1907.  In  the  mutual 
sick-benefit  associations,  including  the  fraternal  organiza- 
tions which  made  provision  for  sickness,  825,770  certifi- 
cates were  in  force  at  the  close  of  1910,  and  $2,375,967  was 
paid  out  for  claims.4     Part  of  the  membership  of  these 

1  Rubinow,  Social  Insurance,  424. 

2  lb.  426  and  293. 

3  lb.  292. 
*  lb.  294. 


28  SOCIAL   INSURANCE 

fraternal  associations  is  composed  of  business  and  profes- 
sional men. 

Casualty  insurance  companies  issue  accident  and  health 
policies.  Probably  but  a  small  proportion  of  these  policies 
are  taken  out  by  workingmen,  because  of  the  system  of 
yearly  premiums  employed.  Industrial  accident  insurance 
proper,  with  smaller  premiums,  forms  but  a  small  part  of 
the  total  business.  In  191 1,  according  to  figures  given  by 
Rubinow,  the  total  amounted  to  $35,000,000,  of  which  not 
over  one  fifth,  or  $7,000,000,  could  be  placed  to  the  account 
of  industrial  policies;  of  the  total  amount  of  health  in- 
surance, $7,100,000,  not  over  $1,500,000  is  taken  by  workers. 
This  sum  would  represent  perhaps  200,000  workmen.1 
Altogether,  possibly  2,000,000  of  the  wage  workers  of  the 
United  States  are  insured  against  sickness  or  accident. 
While  this  showing  is  in  itself  a  remarkable  one,  it  still 
falls  far  short  of  an  adequate  or  a  complete  insurance  of 
the  working  classes  against  accident  or  sickness.2 

There  is  practically  no  insurance  against  superannuation 
among  the  workingmen  of  the  United  States.  Of  the  1200 
funds  operated  by  workmen  in  connection  with  their  organ- 
izations reported  on  by  the  Commissioner  of  Labor  in  1908, 
only  four  paid  superannuation  benefits,  although  four  more 
had  planned  to  establish  such  a  benefit  feature.  One  of 
these  paid  benefits  to  181 8  members,  only  39  of  whom  were 
in  the  United  States;  another  had  118  pensioners  and  a  third 
172.3     No  actuarial  examination  of  such  funds  has  been 

1  Rubinow,  Social  Insurance,  296. 

2  The  social  value  of  these  industrial  policies  is  somewhat  question- 
able. Only  a  small  part  of  the  premiums  paid  in  goes  for  the  settle- 
ment of  claims.  In  health  insurance,  given  by  the  casualty  companies, 
Rubinow  states  that,  "in  many  companies  not  over  35  per  cent,  and  in 
some  only  30  per  cent  ...  of  the  premiums  return  in  form  of 
benefits  to  the  insured."  The  payments  made  by  the  mutual  sick- 
benefits  associations  are  not  equal  to  one-half  of  the  total  income.  lb. 
296,  294. 

3  Workmen's  Insurance,  in  Twenty-third  Annual  Report  of  the  Commis- 
sioner of  Labor,  32,  34,  and  48-49  (1908). 


VOLUNTARY   AND   COMPULSORY   INSURANCE 


29 


TABLE   I 

SICKNESS  INSURANCE  FOR  WAGE-WORKERS  IN  THE  UNITED  STATES,   I9071 


Form  of  Organization 

Number 

of 
Funds 

Number  of 

Workmen  Covered 

(Approximately) 

Amount  Spent 

on  Temporary 

Disability 

National  unions 

Local  unions 

Industrial  benefit  funds.  .  .  . 

Establishment  funds 

Railroad  funds 

19 
346 

35 
374 

3i 

805 

375,000 
100,000 
55,000 
300,000 
300,000 

$     830,000 

200,000 

250,000 

1,200,000 

2,000,000 

Approximate  totals 

1,130,000 

$4,480,000 

1  Rubinow,  Social  Insurance,  292. 

TABLE    II 

SICKNESS    INSURANCE   IN   MUTUAL   ASSOCIATIONS2 


Items 


1001 


1903 


Number  of  mutual  sick-benefit 
associations 

Number  of  certificates  written . 

Number  of  certificates  in  force 
at  end  of  year 

Total  income 

Total  payments 

Total  payments  for  claims .... 


58 
207,044 

153,907 

>2, 09I,  273 

1,996,204 

927,123 


IOO 
478,990 

517,240 

$4,328,577 
3,996,626 
2,077,857 


119 

651,776 

825,770 

$5,873,638 

5,580,816 

2,375,967 


2  lb.  294.     Taken  from  the  Insurance  Year  Book. 

made.  Some  of  the  fraternal  associations  give  old-age 
annuities.  Probably  but  a  small  proportion  of  these  are 
paid  to  workmen,  and  the  actuarial  basis  has  generally  been 
quite  inadequate, — so  much  so  that  in  many  states  frater- 
nal organizations  are  prohibited  from  giving  old-age  insur- 
ance. Insurance  against  old  age  has  never  been  especially 
popular  in  ordinary  insurance  companies,  and  has  been 
quite  neglected  until  the  last  few  years  by  the  industrial 


30  SOCIAL    INSURANCE 

insurance  companies.  Voluntary  savings-bank  insurance 
against  superannuation  in  Massachusetts,  where  old-age 
annuities  are  sold  at  cost  to  workmen,  has  met  thus  far 
with  but  little  success.1 

Employees  of  railroads  are  comparatively  well  protected 
against  superannuation.  Railroads  controlling  approxi- 
mately 45  per  cent  of  the  total  mileage  of  the  country  have 
established  pension  systems.2  These  pensions  are  given 
only  to  employees  of  long  service.  Several  of  the  large 
trusts  and  industrial  establishments  have  organized  pension 
funds,  some  supporting  the  entire  cost  themselves,  some 
requiring  contributions  from  the  employees  who  expect  to 
receive  annuities.3  Altogether,  these  provisions,  includ- 
ing those  of  the  employers,  protect  but  a  small  part  of  the 
working  class.  Provision  for  superannuation  is  much  less 
developed  among  the  workingmen  of  the  United  States 
than  provision  for  accident  or  sickness. 

Statistics  of  the  extent  of  insurance  in  countries  which 
leave  the  responsibility  for  it  upon  the  workman  show  that 
a  much  smaller  part  of  the  working  class  is  insured  than  in 
countries  which  have  a  compulsory  system.  Estimates  for 
the  relative  extent  of  insurance  under  voluntary  and  com- 
pulsory systems  in  different  European  countries  have  been 
given  in  the  preceding  chapter.  Prior  to  the  establishment 
of  compulsory  insurance  in  Germany  there  was  a  consider- 

1  Rubinow,  Social  Insurance,  411-412.  Cf.  Massachusetts,  Annual 
Report  of  the  Bank  Commissioner,  Part  I.  vii-x;   390-393  (1913). 

*Cf.  Squier,  Old  Age  Dependency,  Chap.  IV.  109-138.  Also  Report, 
Massachusetts,  136-137  (1910).  The  mileage  of  the  railroads  men- 
tioned has  been  computed  from  Interstate  Commerce  Commission, 
Bulletin  of  Revenues  and  Expenses  of  Steam  Roads  in  the  United  States  for 
the  month  of  December,  IQ12. 

3  Squier  reports  on  29  industrial  enterprises  with  pension  systems. 
The  Massachusetts  Commission  sent  1000  inquiries  to  employers  of  the 
state;  of  362  replies,  only  four  reported  a  regular  system  of  retirement 
for  employees,  though  others  have  pensions  in  special  cases.  Rubinow, 
Social  Insurance,  396.  Squier,  Old  A ge  De pendency,  Chap.  III.  Report 
of  the  Massachusetts  Commission,  151  et  seq. 


VOLUNTARY   AND   COMPULSORY   INSURANCE  3 1 

able  amount  of  insurance  among  workers  against  sickness, 
an  employers'  liability  law  which  was  fairly  liberal  for  the 
employees  of  the  railroads,  and  some  slight  provision  against 
old  age  and  infirmity.  But  only  a  portion  of  the  working 
class  was  covered.  In  those  occupations  where  the  largest 
proportions  were  insured,  insurance  was  compulsory.  A 
large  number  still  neglected  to  make  any  provision.  The 
Government  urged  in  1882,  in  advocating  the  compulsory 
measure,  "Experience  has  abundantly  shown  that  the 
universal  adoption  of  sickness  insurance,  which  must  be 
characterized  as  one  of  the  most  important  measures  for 
the  improvement  of  the  condition  of  the  working  classes, 
cannot  be  effected  on  the  lines  of  the  [voluntary]  legislation 
of  1876."1 

The  issue  between  voluntary  and  compulsory  insurance 
is,  then,  the  question  of  the  desirability  of  insuring  all, 
including  the  more  improvident  portion,  of  the  working 
class.  Those  who  would  take  insurance  voluntarily  and 
make  the  payments  that  would  be  prescribed  by  compulsory 
insurance  are  practically  unaffected.  Those  who  would 
make  provision  on  their  own  initiative  but  who  lack  the 
perseverance  to  continue  to  insure  are  prevented  under  a 
compulsory  scheme  from  letting  their  policies  lapse.  Those 
who  would  make  no  provision  at  all  if  left  to  themselves  are 
required  to  contribute.  Is  an  adequate  and  complete  in- 
surance of  members  of  the  working  classes  against  these 
various  contingencies  worth  while  from  a  social  point  of 
view? 

It  may  be  urged  that  it  would  be  better  for  society  if  the 
thriftless,  those  who  do  not  insure  themselves  voluntarily, 
were  eliminated  or  made  to  suffer  the  penalty  of  lack  of 
prevision.  This  objection  deserves  a  careful  consideration, 
for  if  thriftlessness  is  an  undesirable  quality  and  if  it  can  be 
eliminated  or  lessened  by  the  refusal  to  extend  compulsory 
insurance  to  all  classes  of  workmen,  should  we  not  prefer 

1  Dawson,  Social  Insurance,  8. 


32  SOCIAL   INSURANCE 

the  system  of  inadequate  voluntary  provision  with  its  more 
rigorous  weeding  out  of  the  unfit  or  undesirable  members 
of  society? 

But  is  thrift  an  element  of  character  that  is  inherited? 
In  accident  cases,  where  the  injured  man  is  fatally  hurt, 
the  burden  of  loss  falls  upon  the  widow  or  the  orphan  chil- 
dren. If  failure  to  take  out  insurance  is  an  evidence  of 
thriftlessness  on  the  part  of  the  husband  and  father,  can 
the  conclusion  be  fairly  drawn  that  the  survivors  lack 
that  quality?  Without  proof  that  thrift  is  an  inherited 
character,  the  argument  fails. 

But  there  is  considerable  evidence  to  show  that  thrift  is 
a  social  product;  it  can  be  inculcated  by  education  and  is 
affected  by  environment.  The  sons  of  the  thrifty  immi- 
grant soon  adopt  the  ways  of  the  new  country  and  the  new 
standard  of  living  may  not  allow  room  for  the  exercise  of 
the  paternal  thrift.  Standards  of  living  may  change  and 
the  margin  between  income  and  living  expenses  may  be 
reduced;  the  amount  of  effective  saving  or  thrift  is  neces- 
sarily dependent  upon  the  standard  of  expenditure.  In 
determining  this  standard  social  influences  play  a  decisive 
part.1  The  exercise  of  thrift  depends  also  upon  the  oppor- 
tunities offered  for  the  investment  of  savings.  In  a  grow- 
ing agricultural  community,  the  demand  for  additional 
capital  to  improve  land  and  equipment  offers  a  direct  and 
strong  stimulus  to  saving.2  When  the  need  for  capital  is 
met  according  to  prevailing  standards  the  incentives  to 
save  are  correspondingly  reduced. 

The  influence  of  education  on  thrift  is  illustrated  in  the 
numerous  experiments  with  systems  of  school  savings. 
In  France  in  1892  there  were  23,375  schools  which  re- 
ceived the  savings  of  their  pupils,  and  478,173  children  had 
deposits  aggregating   12,683,312   francs.3     The  success  of 

1  Johnson,  Influences  affecting  the  Development  of  Thrift,  in  Political 
Science  Quarterly,  XXII.  237-244  (1907). 

2  lb.  227  et  seq. 

*  Cf.  Hamilton,  Savings  Banks  and  Savings  Institutions,  70-87,  esp.  71. 


VOLUNTARY   AND   COMPULSORY   INSURANCE  33 

the  Belgian  subsidized  old-age-pension  scheme  is  due  mainly 
to  the  agitation  in  the  schools.  The  increase  in  the  number 
of  depositors  following  the  grant  of  subsidies  was  largely  an 
increase  in  the  deposit  accounts  of  children  after  a  cam- 
paign of  education.1 

To  argue  that  failure  to  provide  for  accident  insurance 
signifies  improvidence  or  lack  of  thrift  or  other  undesirable 
qualities  is  to  ignore  the  possible  special  circumstances  of  the 
individual  case.  A  workman  who  places  educational  op- 
portunities for  his  children  ahead  of  insurance  or  provision 
for  old  age  ought  not  to  be  judged  so  rigorously.  From 
the  standpoint  of  a  workingman  laying  out  his  limited 
weekly  wage  in  the  best  way,  the  demand  for  accident  or 
other  insurance  must  seem  of  comparatively  small  weight. 
Accidents  do  not  single  out  exclusively  the  undesirable,  and 
claims  for  survival  would  probably  be  more  justly  decided 
on  other  grounds  than  the  presence  or  absence  of  insur- 
ance. 

Lack  of  forethought  for  old  age  may  affect  surviving 
children  if  they  have  to  support  their  parents  in  old  age. 
But  if  there  are  no  surviving  ch.idren  failure  to  provide 
savings  affects  directly  merely  the  improvident  themselves. 
The  question  to  be  considered  here  is  whether  the  existence 
of  severe  hardships  attendant  upon  destitution  in  old  age 
is  a  necessary  spur  to  thrift  among  the  younger  classes  of 
the  population.  The  duty  of  the  State  to  care  for  its  pauper 
population  is  recognized  in  these  times;  the  aged  poor  will 
be  cared  for  in  almshouses,  if  not  by  insurance  or  pensions 
or  by  their  own  savings.  The  question  is  therefore  not 
one  of  survival,   but  whether  insurance  or  pensions  will 

^■Workmen's  Insurance  and  Compensation  Systems  in  Europe,  in  Twenty- 
fourth  Annual  Report  of  the  Commissioner  of  Labor,  I.  521,  518,  Belgium 
(1909).  The  ratio  of  new  accounts  opened  by  depositors  under  twenty 
to  the  total  new  accounts  in  the  General  Savings  and  Retirement 
Fund  was  in  1900,  49  per  cent;  1901,  50;  1902,  45;  1903,  32;  1904,  45; 
1905,  45.  The  low  percentage  in  1903  is  due  to  the  transfer  of  soldiers' 
pensions  to  the  fund  by  virtue  of  the  law  of  March  21,  1902. 
4 


34  SOCIAL   INSURANCE 

diminish  thrift  among  that  part  of  the  population  not  yet 
arrived  at  advanced  age.  The  treatment  of  this  subject 
is  reserved  till  a  later  chapter.1 

The  question  of  the  effect  of  lack  of  forethought  for  acci- 
dent and  sickness  insurance  is  not  between  survival  and 
elimination.  In  few  cases  does  it  mean  so  much  as  the 
latter.  It  involves,  rather,  whether  orphan  children  will 
be  given  the  barest  minimum  of  subsistence,  pinched  by 
need,  forced  to  forego  educational  opportunities,  and  put 
to  work  at  the  earliest  possible  age;  whether  the  widow 
will  be  forced  to  work  and  neglect  her  family,  or  have  to 
apply  for  charity.  It  is  the  question  whether  these  chil- 
dren will  be  allowed  to  make  the  best  use  of  their  oppor- 
tunities to  become  good  citizens  or  whether  all  conditions 
will  be  made  difficult  and  the  chance  of  their  becoming 
worthy  members  of  society  be  materially  reduced.  A  higher 
death  rate  may  eliminate  some;  but  the  survivors  will 
nevertheless  probably  be  of  poorer  quality  and  more  poorly 
equipped  than  otherwise.  This  is  the  important  aspect 
of  the  problem  from  the  social  point  of  view. 

It  does  not  by  any  means  follow,  as  the  argument  under 
examination  has  assumed,  that  under  a  regime  of  compul- 
sory insurance  there  will  be  a  survival  of  unthrifty  elements 
in  society.  Compulsory  insurance  has  an  educational  value 
in  developing  thrift.  It  applies  the  spur  of  compulsion, 
with  the  result  that  substantial  savings  are  actually  accu- 
mulated by  the  working  classes  and  applied  to  the  needs  of 
those  affected  by  accident,  infirmity,  and  old  age.  Thrift 
will  be  practised  more  rather  than  less  under  a  system  of 
compulsory  insurance.  Those  members  of  the  society  whose 
impulse  to  save  is  weakest  are  assisted  by  the  group;  the 
society  as  a  whole  becomes  more  fit  to  survive.  A  society 
whose  members  are  all  provided  against  disastrous  losses 
from  insurable  contingencies  has  a  clear  advantage  over 

1  Chapter  IX. 


VOLUNTARY   AND   COMPULSORY    INSURANCE  35 

a  society  leaving  such  provision  to  individual  action.  Coop- 
eration is  an  element  in  survival  of  no  small  importance. 

Compulsory  insurance,  then,  presents  from  a  social  point 
of  view  decided  advantages  over  a  policy  of  voluntary  insur- 
ance. There  remain  to  be  considered  the  complex  prob- 
lems of  cost.  The  chief  opposition  to  social  insurance 
centers  almost  wholly  on  the  question  of  division  of  cost 
between  employer  and  employee.  There  would  be  little  or 
no  opposition  on  the  part  of  employers  to  compulsory  in- 
surance of  workmen  if  the  workmen  bore  the  entire  cost,  and 
vice  versa. 

Opposition  to  compulsion  per  se  is  usually  merely  a  form 
of  argument  to  cloak  the  real  motive  for  opposition.  By 
itself  the  compulsory  character  of  social  legislation  can 
not  be  considered  a  valid  objection.  Attendance  upon  the 
public  schools  is  compulsory  in  all  advanced  nations,  be- 
cause it  is  held  to  be  socially  desirable.  In  individual  cases 
it  may  seem  a  temporary  loss.  A  measure  which  is  rec- 
ognized as  socially  advantageous  will  not  be  condemned 
merely  because  it  involves  compulsion.  Opposition  to 
compulsion  acquires  significance  only  when  considered  with 
reference  to  a  particular  method  of  collecting  or  apportion- 
ing premiums.  The  opposition  on  the  part  of  workmen  in 
France  to  the  compulsory  old-age  law  was  directed  against 
the  enforced  deductions  from  their  wages  prescribed  by  it. 

The  crux  of  the  problem  therefore  lies  in  the  apportion- 
ment of  cost  between  employer  and  employee.  Assess- 
ment of  part  of  the  cost  upon  employers  will  mean  that  a 
complicated  shifting  process  will  commence  and  economic 
changes  of  more  or  less  importance  may  follow.  Assess- 
ment of  the  entire  cost  upon  employees  would  probably  be 
politically  impossible.  Against  advantages  which  would 
result  from  a  measure  of  compulsory  insurance  must  be 
opposed  such  social  and  economic  disadvantages  as  might 
result  from  the  weight  of   the  burden.     The  question  is  a 


36  SOCIAL    INSURANCE 

complicated  one  in  which  economic,  political,  and  ethical 
considerations,  in  great  variety,  must  figure. 

The  historical  development  of  the  division  of  the  burden 
throws  a  good  deal  of  light  on  the  matter.  The  employer 
was  originally  held  liable  for  negligence  resulting  in  acci- 
dent and  later  for  neglect  to  provide  proper  safeguards  for 
accidents,  though  for  a  long  time  he  was  not  responsible 
for  accidents  to  employees  caused  by  their  own  fault  or  the 
fault  of  fellow-employees.  Appreciation  of  the  fact  that 
frequency  of  accidents  was  dependent  upon  the  character 
of  the  industry  led  to  the  notion  that  it  was  socially  justi- 
fiable to  lay  the  entire  burden  on  the  employer.  This  was 
strengthened  by  the  realization  of  the  fact  that  existing 
remedies  were  inadequate  to  meet  the  situation. 

Similarly  with  insurance  for  sickness  and  old  age:  Em- 
ployers of  domestic  servants  were  required  to  provide  in  case 
of  sickness  for  the  care  of  their  help  and  this  was  extended 
to  other  occupations.  In  the  German  sickness  insurance 
law  the  liability  of  the  employer  was  assessed  at  one  third 
of  the  total  cost.  Employers  had  contributed  towards  the 
funds  of  miners'  organizations  for  provision  for  aged  and 
infirm  as  well  as  injured  persons,  at  first  with  a  contribu- 
tion determined  by  themselves,  later  with  a  legal  minimum 
limit.  In  the  German  invalidity  law  employer  and  employee 
contribute  equally. 

Political  conditions  play  a  large  part  in  such  legislative 
apportionment.  The  respective  power  of  business  and  of 
labor  interests,  the  fear  on  the  part  of  legislatures  of  the 
consequences  of  opposing  labor  measures,  the  fear  of  alien- 
ating the  sympathy  of  the  working  masses  armed  with 
votes,  are  decisive  factors  in  distributing  costs.  In  an  effort 
to  diminish  the  power  of  socialistic  agitation,  as  in  Ger- 
many, business  interests  may  be  induced  to  cooperate  and 
to  agree  more  or  less  willingly  to  accept  a  share  of  the  burden 
of  insurance.  A  compulsory  accident  insurance  law  for  all 
workingmen,  requiring  contributions  exclusively  from  labor, 


VOLUNTARY   AND   COMPULSORY    INSURANCE  37 

would  be  economically  advantageous  but  politically  impossi- 
ble and  socially  unjust.  A  compulsory  old-age  insurance 
law  requiring  the  entire  expense  to  be  borne  by  labor  has 
proved  to  be  politically  possible  in  Sweden,  where  contribu- 
tions practically  in  the  form  of  a  poll  tax  are  levied  on  all 
persons,  male  and  female  (except  certain  specified  classes), 
between  the  ages  of  16  and  66.1  Compulsory  deductions 
from  salaries  are  made  in  case  of  the  teachers'  pension  law 
of  Massachusetts.  But  the  old-age  insurance  law  of 
France  met  with  vigorous  resistance  to  its  execution  on  the 
part  of  mutualists  because  of  an  attempt  to  deduct  one 
half  of  the  cost  from  wages.2 

Economic  questions  play  an  important  part  in  the  prob- 
lem of  justice  and  expediency.  Does  a  burden  placed  upon 
the  shoulders  of  the  employer  mean  that  it  really  rests  with 
him,  or  does  he  shift  it  to  the  public  or  back  to  the  laborer 
disguised  as  lower  wages?  Is  the  opposition  of  employers 
to  workmen's  compensation  and  to  social  insurance  based 
on  any  real  or  ultimate  disadvantage  to  themselves  or  to 
industry,  or  is  it  simply  a  blind  holding-on  to  existing  con- 
ditions, and  opposition  to  change?  Will  the  establishment 
of  insurance  be  coupled  with  any  alarming  tendencies  toward 
a  reduction  of  thrift  or  an  increase  of  accidents?  An  answer 
to  these  questions  must  be  given  before  a  fair  estimate  can 
be  arrived  at  of  the  social  desirability  of  any  given  measure. 
Is  there  a  balance  of  advantage  in  securing  the  benefits  of 
the  compulsory  insurance  of  workmen  at  an  expense  of  a 
burden  of  unknown  weight  upon  employers  and  industry? 

xCf.  translation  of  law  in  Reichs-Arbeitsblatt,  XI.  858  et  seq. 
2Cf.  Zeitschrifl  fiir  die  gesamte  Versicherungs-Wissenschaft,  XII.  Rund- 
schau, columns  449-50,  676,  1303-04  (1912). 


CHAPTER  III 

Illl     BURDEN    OF   ACCIDENT   COST 

In  the  United  States,  of  the  total  cost  of  accident,  sickness, 
and  infirmity,  no  considerable  part  has  been  laid  on  the 
employer.  The  employer  has  been  made  legally  responsible 
for  a  share  of  the  cost  only  in  case  of  accident.  Liability  has 
been  imposed  under  the  common  law  of  negligence,  de- 
veloped by  interpretation  and  amended  by  statute.  In  the 
last  few  years  workmen's  compensation  legislation  has  been 
enacted  in  many  states. 

The  amount  of  the  burden  of  cost  laid  on  industry  has 
varied  with  changes  in  the  law  of  liability,  in  its  interpreta- 
tion, in  the  zeal  with  which  claims  for  liability  have  been 
pressed,  in  the  character  of  awards  for  damages,  and  also 
with  changes  in  the  rate  of  accident.  The  main  features  of 
the  changes  in  the  law  of  liability  are  well  known  and  scarcely 
need  discussion.  But  the  amount  of  the  burden  laid  on 
industry  with  a  given  legal  liability  depends  to  a  large 
extent  upon  the  attitude  toward  liability  for  accidents  pre- 
vailing among  workmen  and  in  the  community.  It  may 
therefore  be  worth  while  briefly  to  review  changes  in  this 
attitude  toward  employers'  liability,  and  to  show  the 
connection  between  these  and  changes  in  the  common  law 
and  in  the  burden  laid  upon  employers. 

In  the  medieval  system,  under  conditions  of  service  or 
servitude,  there  was  no  liability  of  master  to  servant.  Com- 
pensation could  be  recovered  by  the  master  if  the  servant 
was  injured  or  killed  by  the  act  of  a  stranger.  It  was  a 
change  of  far-reaching  significance  when  the  right  to  recover 
was  held  to  vest  in  the  victim.  But  the  victims  were  slow 
in  recognizing  the  importance  and  in  reaping  the  fruits  of  it. 

38 


THE    BURDEN    OF   ACCIDENT   COST  39 

Accidents  used  to  be  accepted  by  all  classes  as  a  manifesta- 
tion of  the  will  of  God.  In  seafaring,  one  of  the  preeminently 
dangerous  occupations,  death  or  injury  was  hardly  regarded 
as  unusual.  There  was  little  thought  of  holding  the  em- 
ployer liable  for  losses  due  to  accident.  Accidents  were  so 
often  caused  by  the  action  of  the  forces  of  nature  that  to  hold 
the  employer  liable  would  have  seemed  like  holding  him 
responsible  financially  for  the  acts  of  God.  Where  this 
theistic  explanation  of  accidents  did  not  prevail,  the  in- 
dividual was  held  to  be  responsible  for  his  own  fate.  Ac- 
cidents were  caused  only  by  gross  carelessness  on  the  part 
of  the  injured  man.  Any  one  observing  ordinary  care  could 
avoid  injury.  Where  such  conceptions  as  these  prevailed, 
no  great  burden  was  laid  on  industry  by  common  law 
liability  for  negligence. 

As  large-scale  production  has  become  more  prevalent, 
as  factories  have  increased  in  size,  and  as  larger  groups  of 
workmen  have  been  brought  together  in  a  common  place  of 
work,  this  conception  of  individual  responsibility  has  been 
modified.  In  the  first  place,  it  becomes  obvious  that  a 
workman  may  be  injured  by  the  act  or  negligence  of  a  fellow 
servant,  for  whose  acts  he  is  in  no  way  responsible  and  over 
whose  selection  he  had  no  control.  In  the  second  place, 
where  large  numbers  of  workmen  are  brought  together,  it 
becomes  possible  to  observe  a  conformity  to  law,  a  regularity 
in  the  frequency  of  accidents.  Given  men  of  average  in- 
telligence and  carefulness,  a  certain  number  of  accidents  of 
a  given  type  will  occur  every  year.  It  becomes  possible 
to  predict  with  some  approximation  to  accuracy  how  many 
accidents  will  take  place  among  a  large  group  of  workmen. 
Whether  a  particular  man  will  be  injured  depends  on  specific 
causes,  but  these  are  no  longer  looked  upon  as  the  only 
significant  facts.  Where  workmen  can  be  observed  and 
treated  in  groups,  the  importance  of  the  group  result  begins 
to  be  appreciated. 

The  new  appreciation  of  the  significance  of  accidents  has 


40  SOCIAL   INSURANCE 

caused  a  change  in  attitude  toward  compensation  for  in- 
juries. Employers  of  large  groups  are  more  ready  to  rec- 
ognize the  justice  of  a  system  of  compensation  based  on 
the  group  phenomenon  in  place  of  insisting  on  a  principle 
of  individual  responsibility  no  longer  applicable  to  all  cases. 
Workmen,  observing  accidents  caused  by  negligence  of 
fellow  servants  affecting  men  in  other  departments,  have 
become  conscious  as  a  group  that  the  old  system  in  many 
cases  wrought  hardship  and  was  unjust.  Close  association 
of  large  numbers  in  factories  has  favored  the  development 
of  a  group  consciousness.  Legislators  have  gradually  come 
to  the  conclusion  that  social  welfare  demands  that  men 
injured  in  accidents  be  adequately  compensated,  if  only 
to  avoid  penalizing  their  dependents  and  survivors.  Ac- 
cidents may  seem  to  be  caused  proximately  by  special  in- 
dividual causes;  yet  the  group  result,  the  regular  recurrence 
every  year  of  nearly  the  same  number  of  accidents,  makes 
an  adequate  provision  for  survivors  and  dependents,  who 
are  in  no  way  to  blame  for  the  accident,  the  only  reasonable 
course  for  an  enlightened  social  policy  to  pursue. 

With  such  an  attitude  prevailing,  claims  for  damages  will 
tend  more  and  more  to  be  pressed  to  the  legal  limit,  awards 
of  damages  by  juries  will  be  more  and  more  favorable  to 
plaintiffs,  till  finally  employers'  liability  legislation  is  super- 
seded by  workmen's  compensation  laws. 

These  changes  in  point  of  view  bring  out  the  significance 
of  the  changes  in  the  common  law  of  liability.  At  first  the 
employer  was  liable  for  damages  only  if  he  was  proved  to  be 
negligent,  and  in  few  cases  was  it  possible  for  satisfactory 
proof  to  be  brought.  The  industrial  revolution,  the  develop- 
ment of  the  system  of  factory  labor,  the  introduction  of 
steam  transportation,  brought  new  problems  of  the  relation 
of  negligence  and  accident  for  the  courts  to  decide;  the 
common  law  was  extended  by  new  interpretations  suggested 
by  the  view  of  justice  and  public  policy  held  by  the  judges 
making  the  decisions.     These  interpretations  in  most  cases 


THE    BURDEN    OF   ACCIDENT   COST  41 

ran  counter  to  the  change  in  attitude  toward  accidents 
caused  by  the  new  conditions.  The  fellow-servant  doctrine 
held  that  the  employer  was  not  liable  for  damages  if  the 
accident  was  caused  by  a  fellow  servant.  Let  the  injured 
man  recover  from  the  workman  at  fault.  The  doctrine  of 
assumption  of  risk  held  that  the  employee  was  familiar  with 
and  assumed  the  risk  of  employment.  Where  repairs  had 
not  been  made,  or  where  safety  laws  had  been  violated,  the 
employee  could  not  recover  damages  if  it  could  be  proved 
that  he  knew  of  these  conditions  and  had  neglected  to  give 
notice  of  defects;  he  lost  his  claim  to  damages  if  he  con- 
tinued to  work  after  a  reasonable  time  had  elapsed  and 
nothing  had  been  done.  Contributory  negligence,  no 
matter  how  slight,  on  the  part  of  the  injured  workman 
forfeited  all  claim  to  damages. 

Modifications  in  these  doctrines  were  made  when  the 
essential  hardship  of  the  rules  of  interpretation  was  realized. 
These  modifications  were  made  in  the  newer  court  decisions. 
Employers'  liability  laws  were  passed,  codifying  these  and 
introducing  other  changes.  One  important  change  in- 
troduced was  the  shifting  of  the  burden  of  proof  in  case  of 
workmen  injured  in  railroad  accidents.  The  workman  was 
no  longer  required  to  bring  proof  of  the  negligence  of  the 
employing  corporation,  but  the  employer  had  to  prove  that 
there  was  no  negligence  on  his  part,  or  offer  some  other  de- 
fence to  escape  liability.  The  fellow-servant  doctrine  was 
modified.  Superintendents  and  foremen,  men  in  an  over- 
seeing or  directing  capacity,  were  regarded  as  agents  of  the 
employer,  to  whom  the  fellow-servant  rule  no  longer  ap- 
plied. Workmen  employed  in  different  departments  of 
an  industry  wore  no  longer  classed  as  "fellow  servants"  in 
the  meaning  of  the  legal  phrase.  The  doctrine  of  assump- 
tion of  risk  was  definitely  excluded  as  a  defence  w  here  safety 
laws  had  not  been  observed  or  had  been  violated. 

These  modifications  of  the  common  law,  coupled  with 
the  increasing  readiness  of  injured  workmen  to  press  their 


42  SOCIM     INSURANCE 

claims  for  damages,  have  placed  upon  employers  a  larger 
and  larger  burden  of  accident  cost.  Employers  have  been 
forced  to  pay  damages  for  accidents  in  a  gradually  increasing 
proportion  of  cases  of  accident.  The  amount  of  damages 
awarded  depends  somewhat  upon  the  concept  of  a  fair 
award  for  injury  prevalent  in  the  community  or  among 
workmen.  The  standard  of  a  fair  award  is  probably  rising, 
as  more  and  more  importance  is  placed  on  human  life. 
Juries  nowadays  are  more  likely  to  make  high  awards  than 
formerly,  especially  where  the  employing  company  is  a 
railroad  or  a  large  corporation.  On  the  other  hand,  efforts 
are  made  systematically  by  large  corporations,  employers 
of  large  numbers  of  workmen,  and  insurance  companies  to 
reduce  the  amount  that  they  are  called  upon  to  pay.  Cases 
in  court  may  be  fought  to  the  last  ditch  in  the  effort  to 
exhaust  the  financial  means  of  the  claimant  for  damages  or 
to  discourage  other  claimants.  Sometimes  cases  are  ap- 
pealed to  secure  judgments  that  may  serve  as  favorable 
precedents  for  future  trials.  More  frequently  cases  are 
settled  out  of  court  for  a  small  sum  in  ready  money,  which 
though  far  less  than  adequate  compensation,  may  be  ac- 
cepted in  lieu  of  expensive  litigation  and  a  larger  contingent 
award  of  damages. 

All  the  factors  thus  far  considered  have  worked  together 
to  increase  the  burden  of  accident  cost.  There  remains  the 
question  of  the  accident  rate.  The  total  number  of  acci- 
dents since  the  great  increase  of  population  following  and 
accompanying  the  industrial  changes  of  the  last  century  has 
undoubtedly  increased  enormously.  The  accident  rate, 
or  the  number  of  fatal  or  serious  accidents  per  iooo  workmen 
exposed  to  risk,  has  probably  decreased.  Seafaring  is  not  so 
dangerous  as  it  used  to  be.  The  steamship  is  probably 
safer  than  the  smaller  sailing  vessel.  Wireless  telegraphy 
can  now  summon  aid  to  men  on  a  ship  burning  at  sea  or 
sinking  after  a  collision  with  an  iceberg.  The  danger  of 
accident  in  coal  mining  was  greatly  reduced  by  the  inven- 


THE    BURDEN   OF   ACCIDENT   COST  43 

tion  of  the  safety  lamp,  and  improvements  in  hoisting  ap- 
paratus and  in  other  mining  machinery  have  undoubtedly 
reduced  the  accident  rate.  The  railroad  has  made  possible 
grewsome  mass-accidents  involving  passengers  and  em- 
ployees that  attract  the  attention  of  the  public  to  the  dangers 
of  traveling;  it  has  also  made  tramp  life  more  dangerous; 
but  there  is  little  reason  to  suppose  that  the  accident  rate 
per  1000  employees  is  much  greater  than  for  the  means  of 
transportation  extensively  used  before  the  introduction 
of  the  steam  locomotive.  Railroad  accidents  have  been 
decreased  by  the  introduction  of  the  block  system,  by  the 
use  of  safety  coupling  devices  on  freight  and  passenger  cars, 
and  by  the  use  of  cars  with  steel  frames.  Careful  selection 
of  employees  and  early  pensioning  and  retirement  of  men 
subject  to  the  greatest  strain  have  had  an  effect  in  reducing 
the  accident  rate.  Factory  labor,  even  where  machinery  is 
extensively  employed,  is  not  necessarily  dangerous.  Woolen 
and  silk  manufacture  rank  among  the  least  dangerous  oc- 
cupations.1 Some  of  the  occupations  least  affected  by 
industrial  changes  remain  among  the  most  dangerous, — for 
example  those  of  the  general  laborer,  the  coal  heaver,  the 
dock  laborer,  the  costermonger,  and  the  fisherman.  Even 
for  agricultural  labor  there  is  little  reason  to  suppose  that 
the  risk  of  accident  has  increased  with  the  increase  in  the 
use  of  agricultural  machinery.  The  old  fashioned  scythe 
probably  took  a  larger  toll  of  accident  victims  than  the  more 
modern  mowing  machine.  Minor  accidents,  especially 
those  requiring  surgical  aid,  often  proved  serious  or  even 
fatal  in  the  days  before  the  discovery  of  antiseptics  and 
before  modern  surgery  had  been  developed.  Immediate 
attention  to  injuries  made  possible  by  preparation  for 
"first  aid  to  the  injured"  in  large  establishments  reduces  in 
many  cases  the  seriousness  of  the  consequences  of  accident. 
The  decrease  in  the  accidenl  rate  for  serious  or  fatal  ac- 
cidents tends  partially  to  offset  the  increase  in  Liability  for 

1  Cf.  infra,  72. 


44 


SOCIAL    INSURANCE 


accident  placed  upon  industry  and  the  greater  liberality  in 
measuring  awards  of  damages. 

The  best  evidence  of  the  burden  of  accident  cost  borne 
at  present  by  industry  in  this  country  is  afforded  by  quota- 
tions for  employers'  liability  insurance  made  by  insurance 
companies.  Rates  are  expressed  as  percentages  of  pay 
rolls.  They  vary  with  the  frequency  of  accident  in  the 
industry  considered.  They  vary  also  according  to  the  law 
and  interpretations  of  the  law  in  the  different  states.  An 
investigation  in  1910  into  the  cost  of  employers'  liability 
classified  the  states  into  nine  groups  according  to  the  average 
premium  charged  to  cover  liability  in  representative  oc- 
cupations. New  York  stood  in  Class  V,  midway  between 
the  highest  and  lowest  quotations.  From  the  figures  quoted 
in  Table  I  and  other  tables  an  idea  can  be  formed  of  the 
burden  of  accident  insurance  now  placed  upon  industry  in 
various  occupations. 

TABLE  I 

COMPARATIVE    RATES    IN    CERTAIN   DANGEROUS   INDUSTRIES 


Industry 

New  York ' 

Employers' 

Liability  Law 

New  York 

Workmen's 

Compensation 

Law  of  1910 

Accident 

Insurance 

Germany's* 

1908 

Carpentry 

Bridge  building  (iron)  .  .  . 

Quarries  (stone) 

Railways  (steam) 

Tunneling 

House-smithing 

$i-75 
4-50 
2.00 
2.50 
4-50 
2.00 

$5  00 

12.50 
750 

10.00 

12.50 
6.25 

$2.32 

4  21 

3-18 
1.82 

3  75 
1 .36 

1  The  Report  of  the  United  Slates  Employers'  Liability  and  Workmen's 
Compensation  Commission,  II.  282.  "The  New  York  rates  are  average 
rates  actually  charged,  given  on  the  authority  of  an  officer  of  a  leading 
company." 

2  M.  M.  Dawson,  Cost  of  Employers'  Liability  and  Workmen's 
Compensation  Insurance,  in  Bulletin  of  the  Bureau  of  Labor,  XXI. 
778-783  (September  1910). 

\ 


THE    BURDEN    OF   ACCIDENT   COST  45 

If  a  transition  is  made  from  employers'  liability  to  work- 
men's compensation,  with  more  adequate  benefits  for  in- 
jured persons  and  their  survivors  and  dependents,  some 
increase  in  the  burden  of  accident  cost  must  naturally  be 
expected.  How  great  will  that  increase  be?  Some  light 
is  thrown  on  the  amount  of  increase  by  the  figures  given 
above,  quoted  by  insurance  companies  for  insurance  of 
employers  against  payment  of  compensation  benefits .  The 
insurance  company  in  return  for  a  percentage  of  wages  paid 
agrees  to  pay  all  benefits  required  under  the  workmen's  com- 
pensation law.  In  six  principal  dangerous  industries  in 
New  York  State,  the  rates  for  a  liberal  benefit  under  the 
compensation  law  of  1910,  later  declared  unconstitutional, 
were  approximately  three  times  the  old  rates  charged  under 
employers'  liability.  This  may  be  taken  as  an  outside 
estimate  of  the  difference  in  cost  of  workmen's  compensation 
and  employers'  liability  in  these  dangerous  trades  in  this 
state.  In  the  nature  of  the  case  the  rates  charged  under  the 
compensation  act  were  tentative,  based  on  estimates  of  cost 
rather  than  on  experience.  These  charges  would  be  more 
likely  to  err  on  the  side  of  greater  profit  than  to  fail  to  cover 
the  risk.  Mutual  companies  would  not  hesitate  to  charge 
an  excess  premium,  part  of  which  could  be  returned  later  if 
the  cost  was  found  to  fall  below  the  rate  charged. 

For  comparative  purposes  the  rates  in  percentage  of 
pay  roll  for  Germany  have  been  added  to  the  table.  The 
German  rates  represent  the  yearly  cost  of  liberal  benefits 
as  assessed  by  mutual  employers'  associations  on  a  cost 
basis.  They  are  based  on  the  yearly  requirement  for  1908. 
Each  year  the  cost  of  current  pensions  only  is  levied;  the 
number  of  new  pensions  granted  exceeds  slightly  the  number 
of  those  which  are  withdrawn  because  of  death  or  recovery 
from  injury.  This  cost  will  normally  continue  to  increase 
slowly,  but  with  a  slackening  rate,  for  some  years  to  come 
until  the  total  number  of  pensions  cancelled  equals  the  total 
number  added.     In  1908  twenty-three  years  had  already 


46 


SOCIAL    INSURANCE 


elapsed  since  the  establishment  of  compulsory  insurance, 
and  the  annual  rate  of  increase  had  become  so  small  that 
the  rates  may  be  accepted  as  nearly  equal  to  the  full  cost  of 
adequate  workmen's   compensation   in   Germany.1 

The  comparison  is  an  interesting  one.  In  only  two  cases 
are  the  rates  for  adequate  compensation  administered  at  cost 
in  Germany  greater  than  the  liability  insurance  company 
rates.  In  every  case  the  quotation  for  workmen's  com- 
pensation in  New  York  was  over  twice,  and  in  three  cases 
over  three  times,  the  cost  in  Germany.  This  exhibit  is  the 
more  remarkable  because  compensation  for  industrial 
accidents  is  measured  on  quite  as  liberal  a  basis  as  that  pro- 
posed under  the  New  York  law  of  1910,  and  as  the  form  of 
quotation  eliminates  the  difference  in  the  level  of  wages  in 
Germany  and  New  York  as  a  factor  affecting  the  quotations. 
It  is  probable  that  the  accident  rate  in  New  York  is  greater 
than  in  Germany.     There  are  unfortunately  no  satisfactory 


1  The  figures  for  the  total  number  of  pensions  current,  the  new  pen- 
sions added,  those  subtracted,  and  the  net  increase  are  as  follows  for 
the  years  1908-1912.  They  apply  to  the  pensions  granted  by  the 
Industrial  Employers'  Associations. 

INDUSTRIAL   ACCIDENT   PENSIONS,   GERMANY,    I908-I912 


Number  Pensioners 

Total 

(D  +  (2) 

(3) 

No. 

Subtracted 

(4) 

Year 

From 
Previous 
Year    (1) 

Added  in 
Fiscal  Year 

(2) 

Net  Gain 

(5) 

1909 

1910 

1911 

448,878 
459.775 
462,162 
463.939 
457. 915 

74.58i 
70,986 
69,311 
70.423 
74.488 

523.459 
530.761 
53L473 
534.362 
532.403 

63.684 
68.S99 
67.534 
76,447 

10.897 

2,387 

1.777 

— 6.024 

This  shows  an  average  increase  of  .5  per  cent  per  year,  or  2.1  per  cent  in- 
crease in  the  four  years  in  the  total  number  of  pensions  current.  Columns  i, 
2.  and  3  are  taken  from  Amtliche  Nachrichten  da  ReUhsversicherungsamls,  No.  1, 
January    15.    1910-14.   Table   I. 


THE    BURDEN    OF   ACCIDENT   COST  \"J 

statistics  that  can  be  used  for  comparative  purposes.  A 
greater  frequency  of  accidents  would  account  for  part  of  the 
excess  of  the  rate  here,  but  hardly  for  the  entire  difference. 

To  throw  more  light  on  the  question  of  the  proportion 
of  the  cost  of  accident  compensation  which  merely  covers 
the  burden  of  employers'  liability,  the  rates  in  a  number 
of  industries  not  specially  selected  for  danger  are  compared, 
in  Table  II,  with  German  assessments  and  state  and  private 
company  rates  for  workmen's  compensation.  For  a  major- 
ity of  these  industries  the  German  rates  are  higher  than 
the  present  charges.  The  quotations  of  the  state  insurance 
funds  are  slightly  higher  than  those  in  Germany,  though 
usually  for  a  less  adequate  benefit.  The  rates  quoted  by 
the  private  companies  for  workmen's  compensation  are  in 
most  cases  very  considerably  in  excess  of  the  state  insurance 
rates  and  much  higher  than  the  cost  in  Germany.  In  a 
particular  industry  accident  conditions  in  Germany  may 
be  different  from  the  conditions  in  this  country.  It  is 
possible  that  the  frequency  of  accidents  is  less  there  after 
twenty-three  years  of  accident  insurance  than  in  this  country. 
If  the  rates  in  Germany  may  be  accepted,  with  reservations 
for  differences  in  accident  rates,  as  a  rough  index  of  the  cost 
of  compensation,  and  the  premiums  of  employers'  liability 
insurance  are  expressed  as  percentages  of  this  cost,  the 
median  of  these  percentages  indicates  that  approximately 
one  half  of  the  cost  is  now  laid  on  industry.1  As  a  conserva- 
tive estimate  one  third  or  possibly  two  fifths  of  the  cost  of 
workmen's  compensation  is  already  laid  on  the  employer 
in  these  industries. 

1  The  average  indicates  that  three  fifths  of  the  cost  is  laid  on  industry, 
but  the  median  is  the  more  significant  index. 


48 


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THE    BURDEN   OF   ACCIDENT   COST 


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50  SOCIAL    INSURANCE 

NOTES   ON   TABLE   II 

Figures  for  New  York  are  from  Bulletin  of  the  Bureau  of  Labor,  XXI. 
821-823,  No.  90  (September,  1910).  They  represent  premium  rates 
in  the  form  of  percentage  of  payroll  as  charged  by  insurance  companies 
under  the  old  law,  from  the  Employers'  Liability  Manual.  The  rates 
for  employers'  liability  are  different  in  different  states.  The  Manual 
of  Liability  Insurance  graduates  rates  in  nine  classes,  Class  I  a  maximum 
and  Class  IX  a  minimum.  In  New  York  the  rates  of  Class  V  are 
applied.  The  rates  of  assessment  for  Germany  are  taken  from  the 
table,  /.  c.,  778-783.  The  selection  of  industries,  together  with  the  state 
and  private  company  rates  for  workmen's  compensation,  are  taken  from 
Workmen's  Compensation  Laws  of  the  United  States  and  Foreign  Coun- 
tries, in  Bulletin  of  the  United  States  Bureau  of  Labor  Statistics,  No.  126, 
126. 

Some  idea  of  the  scale  of  compensation  paid  may  be  formed  from 
the  following  comparison  of  benefits  for  permanent  total  disability. 

Germany:  two  thirds  of  "annual  wages"  for  life.  Only  one  third  of 
the  annual  earnings  in  excess  of  1800  marks  ($450)  is  counted  in  com- 
puting the  "annual  wages." 

Nevada:  50  per  cent  of  wages  for  100  months,  $20  minimum,  $60 
maximum,  total  compensation  not  to  exceed  $5000. 

Ohio:  66f  per  cent  of  wages  till  death,  $5  minimum  (per  week),  $12 
maximum. 

Washington:  $20  per  month  if  single;  $25  if  married,  for  each  child 
under  16  years,  $5  per  month,  not  over  $35  in  all. 

Illinois:  50  per  cent  of  weekly  earnings  for  8  years,  $5  minimum,  $12 
maximum  up  to  a  total  of  $3500.  If  complete  disability  still  continues, 
then  a  compensation  is  paid  during  life  equal  annually  to  8  per  cent  of 
the  death  benefit,  not  less  than  $10  a  month.  (This  equals  roughly 
one  fourth  of  the  annual  earnings.) 

New  Jersey:  50  per  cent  of  wages  for  400  weeks,  $5  minimum,  $10 
maximum. 

Wisconsin:  65  per  cent  of  wages;  if  nurse  is  required,  100  per  cent 
after  90  days;  no  total  to  exceed  6  years'  earnings. 

Data  are  taken  from  chart  facing  p.  48  of  Bulletin  of  the  United 
States  Bureau  of  Labor,  No.  126.  For  Germany,  cf.  Dawson,  Social 
Insurance,  1 1 1-2. 

The  rates  of  private  companies  as  well  as  the  state  rates  are  of  course 
more  or  less  tentative.  In  so  far  as  the  private  companies  are  mutual, 
the  excess  in  the  rates  assessed  over  cost  would  be  returned  in  dividends 
to  the  members. 

The  Bulletin  of  the  Bureau  of  Labor  gives  besides  the  regular  quota- 
tions of  the  Employers'  Liability  Manual  an  estimate  by  an  employers' 


THE   BURDEN   OF   ACCIDENT   COST  5 1 

The  comparison  of  the  insurance  rates  quoted  by  private 
insurance  companies  for  workmen's  compensation  with 
those  of  the  state  insurance  funds  and  the  German  assess- 
ments suggests  that  there  is  a  large  element  of  waste  in 
excessive  cost  or  excessive  profit  in  the  system  of  private 
insurance.  Costs  of  administration  under  the  compulsory 
insurance  systems  of  Germany,  Austria,  and  Norway  equal 
approximately  11  per  cent  of  the  total  assessments,  while  in 
Great  Britain  under  private  voluntary  insurance  the  expense 
eats  up  at  least  40  per  cent  of  the  premium  receipts.1  What 
is  the  state  of  affairs  in  the  United  States?  What  propor- 
tion of  the  amount  which  employers  pay  really  reaches  the 
workmen  injured?  Is  the  compensation  received  by  the 
workmen  adequate?  How  large  a  proportion  of  the  cost 
still  rests  on  the  injured  employee  and  his  family  or  sur- 
vivors? 

Of  the  payments  which  the  employers  make  for  insurance 
and  protection  only  a  small  proportion  actually  reaches  those 
in  need  of  compensation.  The  statistics  in  the  report  of  the 
New  York  Commission  on  Employers'  Liability  give  in- 
formation on  these  points.  Ten  companies  which  reported 
their  employers'  liability  business  separately  received  in 
three  years  $23,523,585  in  premiums  and  paid  out  in  the 

liability  insurance  manager  of  the  premium  rates  actually  realized. 
It  is  suggested  that  in  many  cases  the  rates  actually  charged  are  lower 
than  the  manual  rates.  The  average  of  the  percentages  which  these 
estimated  rates  form  of  the  German  rates  is  50  per  cent;  and  the  median 
is  40  per  cent. 

The  assessments  of  the  mutual  employers'  associations  do  not  cover 
the  cost  of  medical  attendance  and  sick  money  during  the  first  thirteen 
weeks.  These  are  provided  by  the  Sick  Funds.  It  is  estimated  that 
the  Sick  Funds  bear  twelve  per  cent  of  the  cost  of  accident  compensa- 
tion. Consequently  the  figures  given  for  the  rates  of  assessment  must 
be  increased  on  the  average  twelve  per  cent  to  cover  the  entire  cost  of 
accidents.  Cf.  Lass  and  Zahn,  Einrichtung  und  Wirkung  der  deutschen 
Arbeiterversicherung,  185  (1900). 

1  Bulletin  of  the  Bureau  of  Labor,  XXI.  750. 


52  SOCIAL    INSURANCE 

same  time  $8,559,795  for  injuries.  In  the  words  of  the 
Commission,  "From  thi^  table  it  is  clear  that  on  an  average 
only  36.34  per  cent  of  what  employers  pay  in  premiums  for 
liability  insurance  is  paid  in  the  settlement  of  claims  and 
suits.  In  other  words  for  every  $100  paid  out  by  employers 
for  protection  against  liability  to  their  injured  workmen,  less 
than  $37  is  paid  to  those  workmen;  $63  goes  to  pay  the 
salaries  of  attorneys  and  claim  agents  whose  business  it  is  to 
defeat  the  claims  of  the  injured,  to  the  costs  of  soliciting 
business,  to  the  costs  of  administration,  and  to  profit."  ' 

Lawyers'  fees  on  the  side  of  the  plaintiff  further  reduced 
the  amount  which  the  workmen  actually  received.  In 
fifty-one  cases  investigated  by  the  Commission,  the  size  of 
the  fee  in  14  cases  was  less  than  25  per  cent;  in  16  cases  be- 
tween 25  and  34.9  per  cent;  in  7  cases  from  35  to  49.9  per 
cent;  and  in  14  cases  over  50  per  cent.  In  151  accident 
cases  investigated  by  the  Labor  Department  of  New  York 
State,  the  total  amount  of  plaintiffs'  fees  and  costs  amounted 
to  22.7  per  cent  of  the  total  gross  receipts  from  employers.2 

Statistics  of  accidents  show  that  the  workman  frequently 
gets  nothing  and  that  in  a  large  proportion  of  cases  the 
compensation  paid  is  inadequate.  In  114  cases  of  married 
men  killed  by  accident  in  Erie  County  in  1907  and  1908, 
the  total  compensation  paid  by  employers  in  38,  or  one 
third  of  the  cases,  was  nothing;  in  over  three  fourths  of  the 
closed  cases  the  workman's  survivors  received  less  than 
$500.  Of  67  similar  cases  of  married  men  killed  in  Man- 
hattan Borough  81.2  per  cent  received  less  than  $500;  over 
one  fourth  received  nothing.  Of  236  fatal  cases  of  accident 
where  the  amount  of  compensation  had  been  determined, 

1  Report  to  the  Legislature  of  the  State  of  New  York  by  the  Commission 
appointed  under  Chapter  §18  of  the  Laws  of  iqoq  to  Inquire  into  the  Ques- 
tion of  Employers'  Liability  and  other  Matters.  First  Report,  31,  (March 
19,  1910).     (Cited  hereafter  as  Report  of  the  New  York  Commission.) 

1  Report  of  the  New  York  Commission,  31.  In  the  46  fatal  cases,  the 
average  fee  was  26.3  per  cent  of  the  gross  receipts  from  employers. 
lb.  30. 


THE    BURDEN    OF    ACCIDENT    COST  53 

125,  or  over  one  half,  received  nothing  more  than  funeral 
expenses. 

The  statistics  of  accidents  reported  on  by  the  Labor 
Department  of  New  York  corroborate  the  conclusion  that 
much  of  the  loss  is  borne  by  the  workingmen.  Ten  hundred 
and  forty  accidents  were  reported  on.  Of  902  cases  in- 
volving temporary  disability  lasting  from  one  week  to  over 
a  year,  404,  or  44  per  cent,  resulted  in  no  compensation. 
In  304  cases  the  amount  recovered  was  less  than  half  of  the 
money  loss  of  wages  and  expenses.  Seventy-one  accidents 
resulted  in  permanent  partial  disability.  In  18  of  these 
nothing  was  paid,  in  22  $100  or  less,  in  14  between  $100  and 
$500 ;  90  per  cent  of  the  closed  cases  received  less  than  $500. 
In  nine  out  of  ten  accidents  resulting  in  permanent  complete 
disability  the  payment  was  less  than  $500;  one  suit  was 
still  pending.  Fifty-seven  accidents  were  fatal;  35  out  of 
the  49  closed  cases,  or  71.4  per  cent,  received  less  than  $500 
compensation.1 

An  attempt  was  made  by  the  Commission  to  balance  the 
losses  suffered  by  the  workingmen  against  all  receipts  from 
employers.  In  the  902  cases  of  temporary  disability  losses 
in  wages  and  in  medical  expenses  amounted  to  $86,876.56. 
The  receipts  from  employers  equalled  $25,338.87,  or  29.2 
per  cent  of  the  total  loss.  For  61  cases  of  permanent  partial 
disability,  losses  up  to  the  return  to  work  not  including 
losses  in  earning  power,  were  $32,727.04  as  against  $11,- 
048.81  received  from  employers.  Only  33.8  per  cent  of  the 
losses  as  thus  calculated  were  compensated.  The  ten  cases 
of  permanent  complete  disability  where  full  information  was 
obtained  showed  a  loss  of  $18,049.95,  estimating  the  per- 
manent loss  in  wages  as  equal  to  three  times  the  yearly 
earnings.  Only  $1,749.80,  or  9.7  per  cent  of  the  loss,  was 
received  from  the  employer.  For  53  fatal  cases,  including 
three-years'  wage  loss,  losses  of  $113,919.95  were  offset  by 
but  $25,960.53.     Only  22.8  per  cent  of  the  losses  were  com- 

1  Report  of  the  New  York  Commission,  20-21. 


54  SOCIAL  INSUSANC1 

pensated  l>\  the  employer.  Estimates  for  m  fatalities 
to  married  men  Investigated  by  the  Commission,  showed 
->),90i  which  were  offset  l>y  $51,957,  <>r  17. 1 
per  oent,  received  from  employers. 

Other  investigations  arrive  at  similar  results.  Out  of 
355  fatal  cases  investigated  by  the  Pittsburgh  Survey,  57 
per  cent  of  the  dependent  families  received  nothing.  Of 
nt  injury,  56  per  cent  received  no  compensation.1 
I  )t  }o6  non-fatal  cases,  the  reports  of  which  were  received 
by  mail  from  the  workingmen  by  the  Wisconsin  Bureau  of 
Labor  and  Industrial  Statistics,  only  91,  or  29.7  per  cent, 
received  anything  in  addition  to  doctors'  bills.  Seventy- 
two,  or  23.5  per  cent,  got  nothing.  In  131  non-fatal  cases 
reported  on  by  the  factory  inspectors,  only  10,  or  7.6  per 
cent,  received  anything  in  addition  to  doctors'  bills,  while 
28,  21.4  per  cent,  received  nothing.  The  remainder  re- 
ceived part  or  all  of  the  medical  expenses.  In  51  fatal 
cases,  32  out  of  51  received  less  than  $500,  8  secured  over 
$iooo.2 

The  conclusions  to  be  drawn  are  clear.  Under  employers' 
liability  the  burden  of  accident  cost  placed  upon  the  em- 
ployer has  gradually  increased  till  now  in  states  with  laws 
imposing  an  average  burden  it  equals  roughly  one  third  of 
the  cost  of  adequate  workmen's  compensation.  Only  a 
small  proportion  of  the  premium  paid  by  the  employer  ac- 
tually reaches  the  injured  employee  or  his  family.  The  in- 
crease in  cost  incurred  by  transition  to  workmen's  compensa- 
tion could  be  materially  reduced  by  elimination  of  the  waste 
which  characterizes  employers'  liability.  A  reduction  in 
accident  rates,  hastened  as  in  Germany  by  increasing  the 
burden  laid  on  the  employer,  would  make  the  transition 
easier.  Under  these  conditions  the  balance  of  social  ad- 
vantage seems  to  incline  definitely  toward  the  adoption  of 
adequate   workmen's  compensation   legislation. 

1  Report  of  the  New  York  Commission,  24. 
Hi.,  24  et  seq. 


CHAPTER   IV 

INCIDENCE   OF   THE    BURDEN    OF   ACCIDENT   COST 

Prior  to  a  regular  system  of  insurance,  the  burden  of 
damages  for  negligence  in  accident  cases  rested  with  the 
employer  and  his  business.  Accidents  and  especially 
awards  of  damages  were  rare.  The  employer  could  not 
make  allowance  for  them  in  his  costs  of  production.  They 
reduced  his  profits  or  swallowed  up  his  accumulations. 
Awards  for  damages  affected  the  individual  employer  and 
not  the  trade.  The  employer  could  not  raise  the  prices 
of  his  goods  or  services  to  shift  the  cost  to  the  consumer, 
nor  could  he  reduce  wages.  The  loss  remained  on  the 
employer  upon  whom  it  originally  fell. 

After  the  enactment  of  liability  laws,  the  employer  as  a 
rule  sought  to  protect  himself  against  unusual  losses  by 
taking  out  indemnity  insurance  in  an  accident  liability 
company.1  Being  required  to  pay  damages  for  injuries 
independent  of  personal  or  delegated  negligence,  he  wished 
to  equalize  losses  and  escape  the  danger  of  ruin  from  a 
sudden  disaster  in  his  establishment.  This  is  a  risk  to 
which  ordinary  insurance  principles  can  be  applied  and  the 

1  As  a  consequence  of  the  legal  enactments  regulating  employers' 
liability,  different  insurance  associations  were  formed  to  meet  the  special 
liability  thus  imposed.  Immediately  following  the  enactment  <>t  t ho 
German  Liability  Law  of  1871  the  first  accident  liability  insurance 
company  was  organized,  the  Allgemeine  Unfattversicherungsbank  of 
Leipzig.  Following  the  employers'  liability  act  of  1880  in  England, 
insurance  indemnity  was  offered  by  the  new  Kni|  It >\  rr^'  1  i.il>ility  Assur- 
ance Corporation  of  London.  This  company  entered  the  United  States 
in  anticipation  of  the  enactment  of  the  Massachusetts  Employers' 
Liability  Act  of  1887.  If.  Haftpflichtoersickernng,  in  Handnodrt 
3d  ed.,  V.  226.  Also,  Liability  and  Compensation  Insurance,  i  series 
of   lectures   delivered   before   the    Insurance    Institute   of    Hartford,   5 

(I9I3)- 

55 


56  Six   I A  I      IN  ST  RAN"   I 

rates  can  be  adjusted  on  the  basis  of  experience  to  cover 
the  amount  of  risk. 

The  substitution  of  liability  insurance  for  the  crude 
payment  of  the  award  makes  it  possible  for  the  employer 
to  reckon  with  the  liability  cost  as  one  of  his  expenses  of 
production.  An  attempt  will  be  made  to  shift  it  to  the 
purchaser  in  the  shape  of  higher  prices  or  to  pass  it  on  to 
someone  else.  It  no  longer  can  be  considered  simply  as  a 
reduction  of  profits.  The  legal  theory  that  the  employer 
pays  the  cost  of  compensation,  assumed  in  the  common 
argument  that  a  compensation  law  is  unconstitutional 
because  it  takes  away  the  property  of  employers  without 
due  process  of  law,  is  not  true  economically  from  the  time 
when  an  insurance  premium  takes  the  place  of  direct  awards 
for  damages.  Here  a  complicated  economic  process  begins 
to  play  its  part,  and  the  burden  is  distributed.  Claims 
which  are  adjusted  by  the  employer  outside  of  his  contract 
with  the  liability  company  and  claims  arising  outside  of 
the  contract  for  which  the  employer  is  liable  may,  of  course, 
still  mean  sometimes  a  reduction  of  profits. 

In  connection  with  the  question  of  the  incidence  of  acci- 
dent cost,  adjustments  of  wages  may  be  discussed.  It  is 
always  possible  that  an  increase  of  the  cost  laid  upon  em- 
ployers by  employers'  liability  laws  or  by  workmen's 
compensation  may  result  in  a  decrease  of  wages  paid  to 
labor.  As  a  converse  proposition,  it  has  often  been  argued 
that,  in  the  absence  of  accident  insurance  cost  levied  on 
employers,  wages  are  enough  higher  to  correspond.1  Where 
the  absence  of  burden  on  employers  makes  conditions 
favorable  to  industry,  employers,  it  is  urged,  can  and  will 

1  For  example,  II.  Herkner,  Die  offentlichen  Lasten  der  deutschen 
Industrie,  in  Preussische  Jahrbiicher,  CXLII.  541  (1910).  "Man  kann 
es,  wie  es  in  Nord-Amerika  der  Fall  ist,  den  Arbeitern  uberlassen,  selbst 
lur  ihre  Versicherung  zu  sorgen  und  bei  Unfallen  Haftpflichtklagen 
gegen  ihre  Arbeitgeber  anzustrengen.  Unter  diesen  Voraussetzungen 
mussen  die  Arbeiter  hijherc  LOhnc  beziehen.  Dass  »ie  tatsachlich  in 
Ameiika  unverhaltnismassig  hoher  sind,  ist  zur  Geniige  bekannt." 


INCIDENCE    OF   ACCIDENT   COST  57 

pay  more;  where  workmen  have  to  insure  themselves,  they 
demand  more  in  wages.  It  is  argued  that  wages  in  dan- 
gerous trades  are  adjusted  to  the  degrees  of  risk.  The 
implication  is  that  the  employer  does  actually  bear  the 
entire  burden  of  accident  insurance  under  present  condi- 
tions, because  of  the  ability  of  the  worker  to  force  upon 
the  employer  in  increased  wages  the  cost  of  accident  insur- 
ance, or  through  the  action  of  economic  forces  of  which 
both  employer  and  employee  are  ignorant.  If  the  wages 
are  adjusted  in  this  way,  the  laborer  is  held  to  be  entirely 
responsible  for  the  failure  to  take  out  insurance. 

The  question  to  be  examined  is  a  question  not  of  the 
general  level  of  wages,  but  of  differences  of  wages  in  different 
occupations.  Legal  theory,  in  a  sort  of  judge-made  eco- 
nomics, assumed  that  wages  would  be  adjusted  in  the 
wage  contract  according  to  the  degree  of  risk.  The  work- 
man was  assumed  to  be  entirely  rational,  as  the  "economic 
man"  of  the  classical  economists,  possessed  of  competent 
knowledge,  and  with  ability  and  power  of  bargaining  suffi- 
cient to  insist  on  such  an  adjustment.  This  is  expressed 
in  the  words  of  Chief  Justice  Shaw  in  his  decision  in  the 
leading  case  of  Farwell  vs.  Boston  and  Worcester:1 

The  general  rule  resulting  from  considerations  as  well  of  justice  as 
of  policy,  is  that  he  who  engages  in  the  employment  of  another  for  the 
performance  of  specified  duties  and  services  for  compensation,  takes 
upon  himself  the  natural  and  ordinary  risks  and  perils  incident  to  the  per- 
formance of  such  services,  and,  in  a  legal  presumption,  the  compensation 
is  adjusted  accordingly.2 

Is  there  any  basis  in  fact  for  this  presumption? 
The  cause  of  persisting  differences  in  wages  in  any  par- 
ticular labor  market  lies  in  the  action  and  inaction,  prefer- 

1  4  Met.  4>). 

*  For  a  discussion  of  legal  theory  from  the  economic  standpoint,  cf. 
Industrial  Accidents  and  Employers'  Responsibility  f 01  !■■■•  ('  m pm- 
sation,  in  Seventeenth  Annual  Report  of  the  Bureau  of  Labor  Statistics  of 
the  Stale  of  New  York  for  the  Year  iSqq,  Part  II,  648  et  seq.,  <>7.;  et  seq. 


I  \l     [NSt  B  \n<  l- 

ences  and  dislikes,  and  differences  in  the  ability  of  labor. 
It'  a  higher  wage  is  paid  in  a  dangerous  industry  for  labor 

•  ■I     i   given  degree  0\    --kill    than  in  a  relatb  upa- 

ticn,  it  i-  paid  nol  because  1 1 1  *  -  employer  is  able  to  pay  more 
but  essentially  because  the  employee  demand-  more. 
If  tin-  laborer  does  not  avoid  the  occupation,  but  is  willing 

to  work  there  tor  tin'  -.mir  wa^c  as  lu-  gets  elsewhere,  the 
employer  in  a  dangerous  occupation  simply  calculates  his 
cnsh  ..11  that  basis.  Ili-  business  i>  adjusted  to  the  cost 
ot"  labor.  The  dangerous  nature  of  the  industry  would 
not  of  itself  render  it  so  profitable  that  it  would  without 
•  in-  on  tin-  part  of  labor  give  it  a  higher  wage.  It 
follows  that  a  theory  that  wages  arc  adjusted  in  proportion 
to  the  ri>k  inibt  explain  why  a  higher  degree  of  risk  causes 
labor  to  demand  and  enables  labor  to  secure  a  higher  wage. 
Whether  or  not  differences  in  wages  will  persist  after  work- 
men"- compensation  is  introduced,  whether  accident  com- 
pensation will  cause  a  reduction  of  wages  in  risky  trades, 
will  depend  on  whether  these  causes  are  affected. 

An  adjustment  of  wages  to  the  degree  of  risk  might  be 
caused:  |  I  |  by  the  inclusion  in  the  standard  of  living  ot  all 
workmen  of  an  item  of  accident  insurance,  or  (2)  by  the 

avoidance  of  dangerous  occupations  by  labor,  together  with 
the  insistence  upon  higher  pay  to  compensate  for  the 
degree  of  risk  by  those  who  remain  in  them. 

If    all    workmen    included    in    their   standard    of    living1 
provision   for   accident    insurance,   there   would   re-iilt    an 
adjustment   of  wages  according  to  the  risk.     The   CO 
insurance  would  vary  with  the  degree  of  danger.     Work- 
men would   have  an  accurate  measure  of  the  decree  of 

1  The  "standard  <>f  living"  as  used  here  i-  conceived  '"  have  an  effect 
mi  iragea  ool  through  an  ultimate  <>r  remote  change  in  the  tuppl)  <>t 
but  through  its  effect  upon  the  laborer's  conception  of  a  "lair 
wage"  or  a  "decent  wage,"  a  concept  which  is  of  considerable  impor- 
tance in  determining  what  wages  unionised  labor  (and  toe  less  degree 
non-union  labor)  demands  and  with  whit  energy  and  solidarity  work- 
men pre-.-,  their  demands. 


IM  OF    A(  (  IDIA  I     CO  59 

danger  in  that  cost.     Having  thus  a  definite  knowledj 
the  cost,  an  adjustment  could  be  effected  through  an  insist- 
ence on  a  higher  rate  of  remuneration  for  the  extra  risk. 

There  is,  however,  no  general  accident  provision  made 
by  all  workmen.  Accident  insurance  is  not  now  pari  ol 
the  standard  of  living  of  the  working  class.  There  can 
therefore  be  no  general  adjustment  of  wages  to  risk  on  thi> 
basis. 

If,  in  any  special  occupation,  accident  insurance  becomes 
part  of  a  minimum  standard  of  living,  and  it  is  insisted 
upon  by  all  the  workers  in  the  trade,  it  may  be  possible 
to  secure  higher  wages  to  compensate  for  risk.  Resistant  e 
will  be  offered  to  a  decrease  of  remuneration  which  cuts 
into  the  standard,  and  there  will  be  cooperation  among 
workmen  to  enforce  it.  But  only  if  the  inclusion  of  insur- 
ance is  generally  a  part  of  the  standard  will  there  be  this 
psychological  force  tending  to  join  the  entire  body  of  workers 
together  in  cooperative  action.  Where  the  employees  ol 
railroads,  for  example,  pay  definite  sums  each  year  into 
the  treasuries  of  the  railroad  brotherhoods,  there  is  aa 
adequate  basis  for  the  theory  that  wages  in  that  employ- 
ment are  adjusted  so  as  to  permit  of  general  accident  insur- 
ance among  the  employees. 

The  second  possible  theoretical  basis  of  the  proposition 
that  extra  compensation  is  paid  for  extra  risk  is  that  labor 
avoids  dangerous  occupations  or  insists  on  higher  pay. 
In  other  words,  at  the  same  wages  for  equal  degrees  ol  skill 
labor  shuns  the  dangerous  and  (locks  to  the  safe  industries; 
only  with  an  increased  otter  of  wages  will  there  be  an  ade- 
quate supply  of  labor  attracted  to  the  dangerous  trade. 

On  this  hypothesis  the  compensatory  adjustment  of 
wages  will  not  necessarily  be  in  proportion  to  the  cosl  ol 
accident  insurance.  It  will  take  place  on  the  basis  of  an 
indefinite  "avoidance"  ol  the  trade  by  workmen.  The 
dangers  of  an  occupation  will  be  merged  in  with  the  other 
characteristics  which  influence  labor  to  prefer  or  bo  ^hun 


60  SOCIAL   INSURANCE 

the  industry'.  Whether  under  this  theory  wages  would 
increase  by  the  full  amount  of  the  cost  of  accident  insur- 
ance to  cover  the  risk,  by  only  a  part  of  it,  or  by  many 
times  the  cost,  would  be  impossible  of  prediction  and  would 
depend  on  the  psychological  effect  on  the  workmen  of  the 
knowledge  of  the  presence  of  danger. 

Adam  Smith  thought  that  hazard  of  a  trade  was  in  general 
underestimated,  especially  in  that  period  of  life  when  the 
choice  of  occupation  was  made,  but  he  did  not  compare  it 
specifically  to  the  cost  of  accident  insurance.1  Mill  sug- 
gested that  wages  in  the  most  disagreeable  occupations 
might,  in  times  of  an  overabundant  supply  of  labor,  be 
paid  worst  of  all,  because  no  one  who  could  get  any  other 
job  would  accept  employment  in  it  and  those  who  had  no 
other  alternative  would  be  glad  to  accept  anything  they 
could  get.2  Roscher  believed  that  the  extra  wage  paid  for 
extra  risk  was  not  enough  on  the  average  to  pay  for  accident 
insurance.3 

Labor  may  be  relatively  scarce  in  a  dangerous  trade 
because  of  reluctance  to  enter  the  trade,  because  of  a  large 
flow  of  men  away  from  it  on  learning  of  or  realizing  its 
danger,  or  because  of  a  heavy  accident  or  general  mor- 
tality. 

The  essential  difficulty  with  the  theory  of  wage  adjust- 
ment lies  in  the  inadequacy  of  popular  knowledge  of  the 
degree  of  risk.  Avoidance  of  dangerous  trades  and  an 
estimation  of  compensation  can  occur  only  if  the  character 
of  i  he  industry  or  the  degree  of  risk  is  known.  An  unknown 
element  cannot  be  accounted  for  in  the  psychology  of  the 

1  An  Inquiry  into  the  Nature  and  Causes  of  the  Wealth  of  Nations, 
edited  by  Edwin  Cannan,  I.  110-2  (1904). 

1  Principles  of  Political  Economy  with  some  of  their  Applications  to 
Social  Philosophy.     I.  475  (ed.  1864). 

1  System  der  Volkswirtschaft.  Die  Grundlagen  der  Nationalokonomie, 
300  (1854).  "  Uebrigens  pflegt  der  Mehrlohn  der  gefahrlichen 
Arbeitacwrige  noch  nicht  einmal  zu  einer  vollen  Assecuranzpramie 
auszureichen." 


INCIDENCE   OF   ACCIDENT   COS!  6 1 

workman  when  he  makes  his  contract.  Statistics  of  deaths 
and  minor  injuries  have  been  and  are  far  from  perfect, 
especially  in  this  country.  The  average  workman  has  no 
first-hand  knowledge  of  the  statistics,  but  merely  a  general 
acquaintance  with  the  conditions  of  work.  And  his  famil- 
iarity with  the  conditions  of  danger  is  more  apt  to  make 
him  less  apprehensive  and  to  breed  contempt  for  the  risk 
than  to  move  him  either  to  avoid  the  occupation  or  to 
demand  more  wages.  If  workmen  are  ignorant  of  condi- 
tions in  a  dangerous  industry,  or  if  they  disregard  the 
hazard,  there  will  be  no  tendency  to  avoid  it. 

If  there  is  no  tendency  to  avoid  entering  the  occupation, 
then  in  occupations  where  there  are  no  barriers,  such  as 
labor-union  rules  or  the  prerequisite  of  a  certain  degree  of 
skill,  to  the  ingress  of  new  labor,  other  factors  tending  to 
reduce  the  labor  supply  can  have  little  effect.  A  high 
accident  or  general  mortality  rate  in  an  occupation  will  not 
affect  the  supply  of  labor,  if  men  enter  it  freely.  Men 
learning  of  danger  may  leave  the  trade  quickly;  but  if 
others  ignorant  of  danger  are  always  waiting  to  take  their 
places,  only  the  permanence  of  the  labor  force,  not  wages, 
will  be  affected.  In  case  of  industrial  diseases,  familiarity 
with  and  dread  of  the  results  might  cause  men  to  be  con- 
tinually leaving  the  trade.  The  effects  of  lead  poisoning  are 
soon  learned  by  new-comers  to  the  lead  industries,  and  the 
character  of  the  industry  seems  to  affect  the  permanence 
of  the  labor  force.1 

The  case  is  quite  otherwise  where  there  is  popular  knowl- 
edge of  the  degree  of  risk.  Sometimes  danger  is  so  obvious 
that  physical  bravery  is  required.  Rescue  work  in  a  mine, 
in  which   an  explosion  had  just  occurred,   would   not   be 

1  "The  men  employed  in  this  industry  are  foi  the  nmsi  p.irt  of  foreign 
birth,  with  a  varying  proportion  of  American  horn,  who  usually  hold 

the  more  highly  skilled  positions.  The  work  is  for  the  mosl  p.irt  un- 
skilled or  at  the  most  semi-skilled.  It  is  a  shifting  class  of  labor 
everywhere.  .  .  ."  Lead  Poisoning  in  the  Smelting  and  Refining  of 
Lead,  in  Bulletin  of  the  U.  S.  Bureau  of  Labor  Statistics,  No.  141,  u. 


62  SOCIAL    INSURANCE 

undertaken  lor  mere  pay  without  a  high  extra  compensa- 
te >n.  Timid  souls  shrink  from  such  work.  Brave  men 
volunteer  without  thought  of  pay.  In  this  case  danger  is 
evident  and  must  be  faced  at  once.  The  name  of  the  occu- 
pation may  be  suggestive  of  danger  to  the  most  impervious 
brain.  Powder  mills  suggest  to  the  least  imaginative  the 
possibility  of  an  explosion.  An  extra  wage  may  have  to 
be  offered  in  such  occupations  to  secure  an  adequate  labor 
supply-  Reckless  men  who  care  not  if  an  accident  occurs 
or  men  who  have  faith  in  their  own  good  fortune  may 
scoff  at  or  disregard  the  chance  of  accident. 

For  the  rest,  danger  exercises  little  or  no  influence  upon 
choice  of  occupation  or  on  the  demands  of  labor.  A  man's 
occupation  is  often  decided  by  the  opportunities  which  are 
open  to  him.  Coal  mining  and  seafaring  are  among  the 
most  dangerous  trades.  Men  who  have  grown  up  in  a 
seaport  town  are  apt  to  minimize  the  danger  of  seafaring. 
In  a  mining  town,  mining  may  be  the  only  occupation  open. 
Not  only  is  there  no  accurate  knowledge  of  the  degree  of 
risk,  but  there  is  no  common  action  on  the  part  of  labor 
either  in  avoiding  the  industry  or  in  demanding  higher  pay. 

Among  skilled  and  unionized  workmen,  where  there  are 
barriers  to  the  entrance  of  men  to  the  trade,  the  conditions 
of  extra  compensation  for  extra  risk  are  somewhat  modified. 
If  there  are  effective  restrictions  on  the  number  of  men 
permitted  to  enter  the  trade,  an  avoidance  of  the  occupation 
on  account  of  danger  would  affect  not  wages  but  the  char- 
acter of  the  personnel.  The  supply  of  labor  would  be 
limited  to  the  number  allowed  under  the  restrictive  condi- 
tions: higher  wages  would  be  paid,  not  on  account  of  the 
risk  of  accident,  but  because  of  the  control  of  the  labor 
supply.  Where  the  trade  is  not  fully  unionized  or  where 
restrictive  action  is  not  taken  or  is  not  effective,  a  high 
degree  of  danger  may  affect  wages — if  the  labor  supply  is 
short  on  account  of  risk.  If  knowledge  that  the  industry 
is  dangerous  and  fear  of  danger  are  associated  with  skill 


INCIDENCE    OF    ACCIDENT    COST  63 

and  intelligence,  more  adjustment  of  wages  to  risk  could 
be  expected  in  skilled  than  in  unskilled  trades.  But  cour- 
age is  usually  greater  among  the  more  intelligent  officers 
of  an  army  than  in  the  rank  and  file;  besides,  with  intelli- 
gence is  apt  to  go  the  knowledge  of  how  to  prevent  or  avoid 
accidents.  A  high  degree  of  danger  may  affect  the  wage 
rate  by  inducing  labor  to  act  together  in  a  more  determined 
manner  to  secure  extra  compensation.  If  all  the  men 
make  provision  for  accident  insurance,  extra  compensa- 
tion may  be  demanded  and  obtained.  If  the  average 
workman  does  not  have  sufficient  realization  of  danger  to 
take  out  an  accident  policy,  there  is  little  likelihood  that  the 
degree  of  danger  would  have  any  influence  on  the  wage  rate. 
Statistical  evidence  on  the  adjustment  of  wages  to  the 
risk  of  accident  is  meagre  and  unsatisfactory.  The  usual 
method  of  proof  is  to  show  or  to  state  that  the  wages  paid 
in  dangerous  trades  are  low.  Adna  F.  Weber,  for  example, 
states: 

This  legal  fiction,  however,  has  no  basis  in  fact;  railroad  trainmen, 
for  instance,  obtain  no  more  than  the  wages  of  ordinary  laborers,  al- 
though one  out  of  every  eleven  of  them  is  severely  injured  every  year. 
Sailors,  miners,  quarrymen  and  other  workmen  in  extra-hazardous  trades 
are  paid  no  more  than  laborers  in  other  occupations  excepting  where 
the  matter  of  skill  enters  into  the  question. ' 

The  absence  of  data  as  to  wages  and  the  degree  of  risk 
is  not  reassuring.  According  to  English  figures — there  are 
no  satisfactory  American  data  as  to  occupational  mor- 
tality— the  comparative  mortality  from  accident  for  railway 
trainmen  was  115  (for  all  railway  employees,  including 
engineers  and  stokers,  101),  as  compared  to  an  accident 
rate  for  "general  laborers"  of  120.2     A  comparison  of  wages 

1  Employers'  Liability  and  Accident  Insurance,  in  Political  Science 
Quarterly,  XVII.  258-9  (1902). 

2  Figures  taken  from  Supplement  to  the  Sixty- Fifth  Annual  Report  of 
the  Registrar  General,  Cd.  2619,  Part  II.  exci.  Cf.  comment,  xvii. 
These  remarks  would  apply  more  to  the  general  mortality  conditions 
than  to  the  accident  rate. 


64  SOCIAL    [NSI  B  \n«  i 

in  one  dangerous  occupation  with  those  in  an  occupation 
equally  hazardous  proves  nothing  as  to  adjustment  of 
wages  to  the  degree  of  risk. 

Rubinow  contends  that  it  is  inadmissible  to  conclude 
from  the  high  wages  paid  in  structural  iron-working  that 
an  extra  amount  is  paid  for  the  high  risk,  because  the  high 
pay  can  be  adequately  accounted  for  on  the  basis  of  greater 
skill  required.1  Low  pay  in  coal  mining,  for  unskilled  labor 
in  the  iron  and  steel  industry,  for  loading  and  unloading,  is 
quite  as  adequately  explained  by  the  low  degree  of  skill. 
To  draw  the  conclusion  that  there  is  no  compensation  for 
risk  because  there  is  a  large  number  of  occupations  of 
extremely  high  risk  and  extremely  low  pay  is  equally  inad- 
missible. Evidence  showing  that  there  are  more  unskilled 
trades  than  skilled  in  which  the  hazard  is  great  is  irrelevant 
to  the  question. 

The  New  York  Commission  on  Employers'  Liability 
ascertained  some  facts  relating  to  the  average  wage  received 
by  persons  killed  or  injured  in  accidents.  The  average 
pay  in  224  fatal  cases  investigated  by  the  Commission  was 
$15.64;  24.1  per  cent  received  less  and  75.9  per  cent  more 
than  twelve  dollars  a  week.2  Among  the  1399  cases  of 
injury  of  men  investigated  by  the  Labor  Department,  928, 
or  66.0  per  cent,  earned  less  than  $15  a  week,  and  nearly 
one  half  less  than  $12  a  week.  These  data  have  little  signif- 
icance till  compared  with  average  wages.     For  the  wages 

1  "  It  has  never  been  statistically  established  that  there  is  any  corres- 
pondence between  the  comparative  risk  of  an  occupation  and  its  remu- 
neration, such  as  there  undoubtedly  is  between  remuneration  and  skill. 
And  if  in  a  few  dangerous  occupations  fairly  high  wages  are  given, 
it  is  usually  found  to  be  dependent  rather  upon  the  skill  than  upon  the 
risk  incurred  (such  as  in  structural  iron-working).  On  the  contrary, 
there  are  a  very  large  number  of  occupations  of  extremely  high  risk 
and  extremely  low  pay,  such  as  coal-mining,  unskilled  labor  in  the 
iron  and  steel  industry',  loading  and  unloading."  Rubinow,  Social 
Insurance,  100. 

*  Report  of  the  New  York  Commission,  First  Report,  91. 


INCIDENCE    OF   ACCIDENT   COM  65 

of  persons  injured  a  comparison  is  made  with  census 
figures  for  the  wages  of  430,475  employees  in  1905. '  In 
this  aggregate  the  median  wage  for  men  falls  between 
$10.00  and  $12.00  per  week.  The  median  wage  in  the 
group  of  men  injured  falls  in  the  wage  class  $12.00  to  $15.00 
per  week.  The  median  wage  of  81  females  injured  fell  in 
the  same  class  as  in  the  report  of  the  Bureau  of  the  Census, 
between  $6.00  and  $7.00  per  week.2  The  average  wage 
paid  to  men  in  New  York  in  1900  was  $558. 09. 3  Figures 
for  1910  are  not  given  for  men  separately.  Making  all 
allowance  for  an  increase  in  wages,  the  average  wage  re- 
ceived by  the  men  killed  by  accident  was  considerably 
higher  than  the  general  average.  This  does  not  mean  that 
there  is  any  adjustment  of  wages  to  risk,  but  tends  to  show 
merely  that  accidents  are  slightly  more  frequent  among 
the  higher-paid  men.4 

An  investigation  of  wages  and  accidents  in  the  paper 
box  industry  in  New  York  bears  upon  this  question  of 
extra  compensation  for  extra  risk.  The  accident  frequency 
in  the  different  processes  of  the  industry  varies  considerably. 
The  frequency  of  accident  was  compared  to  the  wages 
paid  in  these  processes  and  the  conclusion  was  reached 
that  "certain  machines  are  inherently  hazardous  and  yet 

1  Bureau  of  the  Census,  Bulletin  93,  150. 

1  Report  of  New  York  Commission,  First  Report,  2  13. 

*  Twelfth  Census,  VII.  Manufactures,  Pait   I.  cxv. 

4  The  analysis  of  the  report  points  out  that  the  difference  in  the  wage 
group  in  which  the  median  fell  might  not  mean  very  much  of  a  difference 
in  wages  in  the  case  of  1399  men  injured.  Also,  "There  was  possibly 
some  general  tendency  toward  higher  wages  in  employees'  reports  than 
in  employers'."  Dr.  Devine  in  commenting  on  the  results  of  the  inquiry 
ot  Mr.  McLean  said,  mentioning  that  56  per  cent  were  earning  less 
than  $15  a  week,  "Now  I  submit  that  that  has  a  bearing  on  the  ques- 
tion of  whether  wages  are  fixed  in  such  a  w,  over  the  risk  of 
injury  from  accident."  Report  of  New  York  Commission,  25.  87.  Even 
Mr.  Rubinow  quotes  these  data,  which  "seem  to  give  substantial 
evidence  in  support  of  this  contention"  [that  \\  iges  are  not  adjusted 
to  the  degree  of  risk].  Social  Insurance,  100. 
6 


66  SOCIAL    INslKANCE 

no  compensatory  consideration  enters  into  the  wages, 
unless  a  higher  degree  <»f  ^kill  demands  it."  The  evidence 
leaves  much  to  be  desired  in  the  sray  of  conclusiveness. 

•  comparison  of  hazardous  with  non-hazardous  ptQCGMM  for 
the  trade  as  a  whole,  shows  that  the  median  «;i|;e  for  women  in  hazaid- 
001  and  uon-hazardi >u-  occupation  is  identical,  lying  sonic* here  be- 
tween $6  and  £6.49  In  the  case  of  men  the  median  wage  U  i  basardoui 
occupation!  is  *t2  to  $12.99  ai  againal  $9  to  $9.99  in  oon-haaardoua. 
This  difference  is  largely  explained  by  the  fad  that  the  non-haaardoai 
iea  in  which  they  are  engaged  are  not  peculiarly  nun's  jobs — 
most  of  this  kind  of  work  being  done  by  women — when  a--  the  hazardous 
occupations  consist  very  largely  of  cutting,  a  decidedly  skilled  branch 
in  the  work.1 

Light  could  be  thrown  on  the  question  l>y  examining  the 
effect  on  wages  of  a  change  in  the  rate  of  accident. 

The  most  familiar  example  of  the  reduced  number  of  accident--  fol- 
lowing the  introduction  of  proper  safeguards  is  found  in  the  railways 
of  this  country  since  the  enactment,  in  1N93,  of  the  federal  law  com- 
pelling the  use  of  automatic  couplers;  in  five  years  the  number  of  rail- 
killed  from  the  coupling  and  uncoupling  of  car-  iraa 
reduced  one-half  and  the  number  injured  also  virtually  reduced  one- 
half.5 

Here  surely  we  should  find  a  trace  of  the  influence  of 
the  reduction  of  the  rate  of  accident  on  wages,  it  there  is 
any  such  effect.  The  trend  of  the  wages  of  railway  brake- 
men,  as  the  class  of  employees  most  likely  to  be  affected 
by  the  decrease  in  the  number  of  accidents,  is  given  in 
Table  I. 

An  examination  of  the  table  of  the  course  of  brakemen's 
wages  in  different  states  shows  in  five  cases  a  slight  decline 
after  1893;  in  one  of  these-,  Indiana,  it  was  immediately 
made  up  again;  in  two  «  ases  there  was  an  increase;  and  in 

1  Marie  S.  <  >renstein,  Report  on  a  Hundred  Accidenti  in  the  Paper 
Box  Industry  of  Greater  New  York,  in  Fourth  Report  of  New  York  State 
Factory  Investigating  Commission,  II.     299. 

*  Sexenteenth  Report  of  New  York  Bureau  of  Labor  Statistics,  Part  1 1 . 
559  (1889). 


INCIDENCE    OF    ACCIDENT    COST 


67 


TABLE    I 

WAGES   OF    BRAKEMEN; 


Year 

Number  of 
Employees 

Wages 

Year 

Number  of 
Employees 

Wages 

Massachusetts 

Maryland 

1889 

108 

$1.86 

1892 

520 

$1   94 

lv(j<> 

4i 

I 

83 

1897 

829 

I.90 

1891 

82 

I 

93 

Michigan 

1892 

84 

I 

93 

1893 

457 

1   73 

1899 

2245 

I 

87 

1897 

25 

1  70 

1900 

2279 

I 

87 

Nebraska 

Indiana 

1893 

457 

1.86 

1888 

3834 

I 

79 

1898 

284 

1.92 

I889 

4917 

I 

87 

Kansas 

I89O 

5454 

I 

98 

1888 

T057 

1   79 

1891 

6846 

2 

05 

1893 

339 

1  92 

1892 

8125 

2 

14 

1898 

891 

2.11 

1893 

7909 

2 

16 

Pennsylvania 

1894 

6393 

2 

15 

1887 

4917 

1   79 

1895 

5450 

2 

19 

1899 

2729 

1  79 

1896 

5735 

2 

18 

1900 

2685 

1.84 

l89fl 

5563 

2 

16 

New  Jer- 

Montana 

1887 

1212 

1   79 

1893 

19 

2 

40 

1896 

426 

1   79 

1895 

178 

2 

11 

1896 

230 

2 

04 

1897 

233 

2    04 

lA  Compilation  of  Wages  in  Commercial  Countries  from  Official  Sources, 
in  Fifteenth  Annua'  Report  of  the  Commissioner  of  Labor,  I.  165-6  (1900). 

TABLE    II 
TREND  OF   WAGES   IN    INDUSTRY,    1H90-19001 


1890 

100.4 

[896 

99  9 

1891 

ICO    2 

1897 

99  6 

1892 

IOO.7 

[898 

100   1 

1893 

IOO    9 

I899 

101 .8 

1894 

98    O 

I9OO 

'05  4 

1895 

98     I 

1  Wages  and  Hours  of  Labor,  in  Nineteenth  Annual  Report  of  the  Com- 
missioner of  Labor,  2$  ( 1904). 


68 


SCX  1  \l     l\-a  R  VN<  E 


three  a  stationary  OOnditioo  of  wages.  Wages  in  industry 
during  this  period,  1893  [898,  fell  slightly.  TtlC  ricprt— JOQ 
in  business  conditions  in  1893  [896  would  be  of  itself  an 
adequate  explanation  of  a  decline  in  brakemen's  « 

There   is    here    DO    sufficient   evidence  of  an   adjustment  o! 

brakemen's  wages  to  the  degree  of  danger  or  to  the  cost  of 
accident  insurance. 

The  correlation  of  wages  paid  and  the  degree  of  risk 
might  throw  light  on  the  question  of  extra  pay  for  extra 
ri>k.  The  results  of  two  trials  are  given.  There  are  no  sat- 
isfactory American  data  of  occupational  accident  or  general 
mortality,  because  we  have  no  adequate  occupational 
statistics  either  of  deaths  or  of  the  general  population. 
Accordingly,  English  material  has  been  used.  The  accident 
mortality  in  1890-1892  is  correlated  with  the  wages  paid 
in  different  occupations  in  1885.  One  series  of  27  industries 
gives  a  considerable  negative  correlation:  the  greater  the 
degree  of  risk  the  less  the  wage.  The  second  series  of  42 
industries  gives  a  slightly  larger  positive  correlation.  In 
the  former  the  weekly  wages  paid  to  men  are  used  as  the 
basis  of  comparison,  in  the  latter  the  average  annual  earn- 
ings per  employee.  Only  those  occupations  were  selected 
to  which  a  fitting  accident  rate  could  be  applied.1 

Such  a  correlation  can  be  made  only  on  the  assumption 
that  differences  in  wages  due  to  other  causes  than  to  the 
degree  of  risk  will  offset  each  other  if  a  large  enough  number 
of  cases  is  taken.  The  results  of  the  investigations  show 
that  in  the  selection  of  occupations  differences  in  wages  due 
to  skill,  etc.,  are  not  eliminated.     In  the  first  series  a  nega- 

>Th<  of  vagesane  taken  from  the  General  Report  on  the  Wages 

of  the  Manual  Labour  Classes  in  the  United  Kingdom;  with  Tables  of  the 
Average  Rates  of  Wages  and  Hours  of  Labour  of  Persons  Employed  in 
Several  of  the  Principal  Trades  in  1S86  and  i8qi,  C.  6889,  470,  477- 
80  (1893-4).  The  statistics  of  accident  mortality  by  occupations  are 
from  the  Supplement  to  the  Sixty-fifth  Annual  Report  of  the  Registrar- 
General  of  Births,  Deaths  and  Marriages  in  England  and  Wales,  Part  II, 
Cd.  2619,  exci  and  clviii  n  Mq.     Table  IV  (Figures  of  1890-1-2). 


INCIDENCE    OF    ACCIDENT    COST 


69 


TABLE    III 

CORRELATION   OF    ACCIDENT   MORTALITY   AND   WAGES 


Group 

Number  of 
Industries 

Average  Accident 
Mortality 

Average  Normal  Wage  'ix-r 
week)  Paid  in  Men 

s.                      d. 

I 

4 

125.0 

22                  2.5 

II 

4 

60.2 

23                 6.2 

III 

7 

4<>  3 

25               9  3 

IV 

8 

24.4 

25                9  9 

V 

4 

16.0 

23                0.0 

'=-.254 


Group 

Number  of 
Industries 

Average  Accident 
Mortality 

Average  Annual 
Earnings  per  Head 

£ 

I 

6 

I4.O 

42 .0 

II 

7 

23.O 

43  4 

III 

1 1 

33-3 

49-5 

IV 

10 

50.6 

55  7 

V 

8 

1 12.0 

59-8 

r=+-33« 
tive  correlation  was  reached  simply  because  industries  with 
a  high  accident  rate  were  predominantly  unskilled.  In  the 
second  series,  the  skilled  industries  showed  on  the  whole 
the  higher  accident  rates.  Though,  theoretically,  it  might 
be  possible  to  draw  a  conclusion  by  this  method,  if  in  each 
degree  of  skill  wages  in  two  industries  with  different  di 
of  hazard  could  be  compared,  yet  practically  n<>  conclusion 
can  be  drawn  from  a  general  correlation  because  the  assump- 
tion that  differences  of  skill  will  offset  each  other  is  not 
well  founded. 

A  statistical  answer  to  the  question  is  not  possible  from 
the  existing  statistical  material.  We  kn.-w  accident  mor- 
tality only  for  a  comparatively  few  trades.  Differences  of 
accident  mortality  in  differenl  processes  in  the  same  trade 
have  scarcely   been  studied   statistically.     Differences  of 


7" 


Six  1  A  I      INSURANCE 


average  wages  in  different  industries  may  be  largely  affected 
by  the  proportion  of  skilled  to  unskilled  labor  in  them.  Com- 
parison ot  wages  in  different  trades  is  inconclusive  became 
of  the  manifold  causes  of  variation.  Correlation  of  varia- 
tions in  accident  rates  with  changes  of  wages  is  inconclusive 
because  of  the  preponderating  influence  of  other  causes. 
The  chief  difficulty  in  such  an  investigation  is  the  insignifi- 
cance of  the  differences  in  accident  mortality  as  an  influ- 
ence affecting  wages.  Other  causes  are  more  important. 
The  cost  of  accident  insurance  is  a  very  small  sum  per 
year:  3  per  cent  of  the  wages  would  pay  for  an  adequate 
compensation  in  most  dangerous  occupations.1  Differ- 
ences in  accident  risk,  if  adequately  compensated,  would 
require  in  case  of  a  weekly  wage  of  $12.00  a  difference  of 
from  nothing  to  36  cents  per  week;  but  wages  for  men  vary 
from  $7.00  and  less  to  $25.00  and  more,  due  to  differences 
in  skill,  ability,  etc.  To  look  for  statistical  proof  of  a 
tendency  to  extra  pay  for  the  incurring  of  extra  risk  is  to 
search  for  a  needle  in  a  haystack. 

The  question  might  fairly  be  raised  why  there  should  be 
so  much  discussion  about  adjustment  of  wages  to  the 
degree  of  risk  and  practically  none  about  adjustment  of 
wages  to  occupational  mortality.2  The  death  rate  from 
accident  is  but  a  single  factor  in  the  occupational  death 
rate.  A  high  death  rate  from  accident  does  not  always 
mean  a  high  general  mortality  for  the  occupation.  Coal 
mining  ranks  among  the  most  dangerous  trades,   but   its 

1  Three  per  cent  of  the  wages  covers  the  cost  of  accident  compensa- 
tion in  the  German  coal  mining  industry.  The  total  expenditure  of 
the  Knappschafts  Berufsgenossenschaft  in  191 1  for  accident  compensa- 
tion was  34,865,000  marks;  the  total  wages  paid  were  1,169,793,000 
marks.  Cf.  Amtliche  Nackrichtem,  XXIX.  No.  r,  18-19;  42-43.  (Jan. 
10,  1913). 

1  Walker  suggests  that  to  estimate  real  wages  from  nominal  wages 
account  must  be  taken  of  the  risks  of  accident  and  of  differences  in 
mortality  and  length  of  life  in  different  occupations.  The  Wages  Ques- 
tion, a  Treatise  on  Wages  and  the  Wages  Class,  33,  36  ( 1 89 1 ) . 


INCIDENCE   OF   ACCIDENT   Co- I  7 1 

occupational  mortality  is  considerably  below  the  average, 
on  account  of  the  very  low  death  rate  from  tuberculosis. 
The  comparative  mortality  from  accident  of  123  is  com- 
bined with  a  general  mortality  figure  of  846.  The  accident 
mortality  among  inn  and  hotel  servants  is  53,  but  the  gen- 
eral mortality  is  1767.  Comparative  figures  of  accident 
and  general  mortality  in  a  few  occupations  are  given  in 
Table  IV. 

It  in  the  wage  bargain  workmen  were  so  intelligent  and 
so  alive  to  their  own  interests  as  really  to  insist  on  getting 
extra  pay  in  proportion  to  the  extra  risk  of  accident,  why 
should  they  be  totally  indifferent  to  the  much  more  im- 
portant question  of  the  occupational  mortality  from  all 
causes?  The  reason  that  discussion  has  centered  around 
the  question  of  compensation  for  extra  risk  from  accident 
rather  than  for  extra  risks  from  general  mortality  is  simply 
that  the  former  was  an  issue  in  the  debate  on  the  justice 
of  assessing  the  cost  of  accidents  on  employers.  As  a 
defense  it  was  asserted  without  proof  that  wages  were 
adjusted  to  degree  of  danger.  The  question  has  only 
recently  been  raised  whether  the  employer  should  not  also 
be  made  liable  for  sickness  and  old-age  pensions,  on  the 
ground  that  the  occupation  affects  the  sickness  rate  and 
the  age  of  superannuation;  but  it  has  not  yet  been  seri- 
ously proposed  to  levy  upon  employers  in  proportion  to 
the  occupational  death  rate.  Even  if  it  is  urged  that 
occupational  conditions  are  a  chief  cause  of  premature 
death  or  superannuation,  as  a  ground  for  assessing  em- 
ployers and  to  establish  the  justice  of  such  assessment,  it 
will  probably  never  be  seriously  asserted  as  a  counter- 
argument that  wages  are  adjusted  to  a  high  occupational 
mortality,  or  to  an  early  age  of  superannuation.  In  \  iew  of 
the  general  lack  of  popular  knowledge  on  these  questions, 
to  say  nothing  of  the  incompleteness  and  lack  of  knowl- 
edge on  the  part  of  experts,  it  can  scarcely  be  maintained 
that  occupational  mortality  or  superannuation  exercise 
any  important   influence  upon  the  choice  of  occupation. 


72 


SOCIAL   INSURANCE 


TABLE    IV 

COMPARATIVE  MORTALITY  BY  OCCUPATIONS  FROM  ALL  CAUSES  AND  FROM 

ACCIDENT1 


Occupation 


Accident 

All  Causes 

266 

1547 

128 

892 

123 

846 

121 

IO94 

I20 

1987 

117 

723 

"5 

773 

106 

1374 

99 

1036 

99 

90s 

88 

1144 

83 

1778 

58 

925 

23 

927 

22 

898 

22 

872 

22 

527 

21 

901 

20 

935 

2C 

880 

17 

599 

17 

670 

17 

1087 

15 

889 

14 

762 

13 

760 

13 

889 

I  I 

892 

9 

515 

Seaman,  etc.,  Merchant  Service 

Fisherman 

Coal  Miner 

Carman,  Carrier 

General  Laborer 

Ironstone  Miner 

Railway  Guard,  Porter,  Pointsman,  etc 

Dock  Laborer,  Wharf  Laborer 

Slater,  Tiler 

Stone,  Slate,  Quarrier .  .    

Coal  Heaver 

Costermonger,  Hawker,  etc 

All  Occupied  Males 

Wool,  Worsted,  Manufacturer 

Tobacconist,  etc 

Stationery'  Manufacturer;  Stationer,  Publisher 

News  Agent 

Gardener,  Nurseryman,  Seedsman 

Shoemaker 

Printer 

Law  Clerk 

Schoolmaster,  Teacher 

Grocer,  etc 

Gunsmith 

Zinc  Manufacturer,  Worker 

Cycle  and  Motor  Manufacturer 

Artist,  Engraver,  Sculptor,  Architect 

Bookbinder 

Silk,  Satin,  Crepe,  etc.,  Manufacturer 

Clergyman,  Priest,  Minister 


•The  figures  are  from  Supplement  to  the  Sixty-fifth  Annual  Report 
of  the  Registrar -General,  Part  II.  Cd.  2619,  exci,  clviii  et  seq., 
Table  IV.  The  numbers  represent  the  number  of  deaths  from  accident 
and  from  all  causes  that  would  occur  in  a  standard  male  population 
25-65  years  of  age,  distributed  in  ten-year  age  groups  between  these 


INCIDENCE   OF   ACCIDENT   COST  73 

limits  in  the  age  distribution  of  the  general  male  population  of  those 
age9,  so  chosen  that  1,000  deaths  would  result  at  the  general  rates 
prevailing  at  each  age  group,  if  the  rates  for  accident  and  for  all  causes 
at  each  ten-year  age  period  in  the  occupation  in  question  were  applied 
to  the  standard  population.  Cf.  ib.  xi  and  xii.  The  occupation al 
mortality  figure  is  not  always  a  sure  index  of  mortality  incident 
upon  and  connected  with  the  occupation.  A  low  mortality  rate  may 
indicate  simply  that  only  selected  healthy  individuals  remain  in  the 
trade;  a  low  figure  may  mean  that  many  ot  less  than  average  vitality- 
are  forced  into  the  occupation.  See  comment,  ib,  xvii.  Such  se- 
lection would  have  little  influence  upon  comparative  accident  mor- 
tality figures. 


CHAPTER   V 

AMOUNT  AND  Wl  ICHI   OF   1111.  HURDEN  OF  SOCIAL  INSURANCE 
IN   GERMANY 

Before  proceeding  to  an  analysis  of  the  economic  effects  of 
social  insurance  upon  industry,  capital,  wages,  and  profits, 
it  will  lend  definiteness  to  the  problem  to  consider  the 
amount  and  weight  of  the  burden  of  social  insurance  where 
it  has  already  been  introduced.  Germany  is  chosen  as  the 
best  country  in  which  to  study  the  industrial  effects  and  to 
estimate  the  weight  of  the  burden,  because  in  Germany 
social  insurance  has  been  established  for  nearly  thirty  years 
and  its  effects,  if  it  has  any,  should  there  be  most  clearly 
traceable.  Social  insurance,  furthermore,  is  better  devel- 
oped in  Germany,  and  employers  are  heavily  assessed  to 
meet  part  of  the  cost. 

A  large  proportion  of  the  total  population  and  practically 
all  the  working  population  are  included  in  the  scope  of 
insurance.  Among  a  total  population  of  64,551,000  in 
1910,  13,954.973,  or  21.6  percent,  were  insured  against 
sickness;  24,154,000,  or  37.4  per  cent,  against  accident;  and 
15,659,700,  or  24.3  per  cent,  against  invalidity  and  old  age. 
Taking  into  account  only  the  "occupied  working  popula- 
tion" (erwerbstatige  Arbeiterbevolkerung),  including  serv- 
ants, there  were  82.4  per  cent  insured  (1909)  against  sick- 
ness, 148.0  per  cent  against  accident,  and  95.2  per  cent 
against  old  age  and  invalidity.1 

The  total  amount  expended  from  1S85  to  1910,  including 
the  cost  of  administration  was,  in  sickness  insurance,  4,617,- 

1  Manes,  Sozialversicherung  (Rcichsversicherung,  Angtstelltenvcrsich- 
erung,  A rbeitslosenver sickening),  63.  Those  insured  against  acci<lont 
include  a  large  part  of  the  agricultural  population  which  is  not  included 
in  the  "erwerbstatige  AibeiterbevflUcerung. " 

74 


THE    BURDEN    IN    GERMAN!  75 

039,972  marks;  in  accident  insurance,  2,174,186,549  marks; 

and  in  invalidity  insurance,  2,295,341,423  marks.  In  the 
year  1910  the  total  sums  expended  were  379,410,138  marks 
for  sickness,  206,223,179  marks  for  accident  and  218,94  - 
marks  for  invalidity  insurance.  Almost  all  of  this  n 
sents  benefits  received  by  wage  earners, — 357,000,000  marks 
in  sickness,  164,000,000  in  accident,  and  197,000,000  in 
invalidity  benefits.  A  total  yearly  sum  of  nearly  $180, <><><>,- 
000  is  thus  devoted  to  the  welfare  of  sick,  injured,  and  in- 
firm members  of  the  working  class.1 

How  much  does  this  mean  to  the  individuals  benefited? 
Sickness  benefits  include,  as  a  minimum,  free  medical 
attendance  and  sick  pay  equal  to  one  half  of  the  local  wa^s 
of  common  day  labor,  payable  for  a  maximum  period  of 
26  weeks  from  the  fourth  day  of  sickness,  with  hospital 
treatment  as  an  alternative.  The  scale  of  benefits  varies 
with  the  local  fund.  Maternity  benefits  equal  to  sick 
pay  for  a  period  of  eight  weeks,  a  funeral  benefit  of  twenty 
times  the  amount  of  the  basal  daily  wage,  a  family  benefit 
in  case  of  sickness  of  members  of  the  family  of  an  insured 
workingman,  and  other  benefits,  may  be  granted.1 

In  1910  there  were  5,705,429  cases  of  sickness  involving 
inability  to  work,  with  113,459,544  days  of  sickness;  the 
cost  per  case  amounted  to  62.65  marks  ($15.66);  or  3.15 
marks  (78  cents)  per  day.  Per  100  persons  insured,  40.88  cases 
of  sickness  occurred  in  1910,  lasting  815.04  days,  an  average 
of  eight  days  of  sickness  per  insured  workman  per  year.1 

Accident  benefits  commence  after  the  first  thirteen  weeks 
of  sickness  due  to  injury  have  passed.  In  this  initial  period 
the  cost  is  met  mainly  by  the  sickness  funds.  Beginning  with 
the  fifth  week  the  sum  which  an  injured  person  receives  is 
equal  to  two  thirds  of  the  wages  adopted  for  calculating 
benefits.     An  employee  totally  disabled  receives  a  pension 

1  Manes,  S  '<«.?,  66-68. 

1  Dawson,  Social  Insurance,  50  el 

3  Manes,  Somahersickerung,  69,  7-  3, 


76  SCXIM     MSI  I  \s«  l 

equal  to  two  thirdi  of  his  yearly  earnings;  in  can  of  partial 
disability,  proportionately  less.  Above  $450  onk  one  third 
of  the  sragea  1- «  ounted  in  determining  the  yearly  earnings. 
In  case  of  complete  helplessness,  the  pension  may  be  in- 
creased to  the  full  yearly  wages.  Funeral  money  equal  to 
one  fifteenth  of  the  yearly  earnings,  With  a  minimum  of 
(12.50  (50  marks)  is  paid  in  case  of  death;  the  widow  and 
orphan  children  eat  h  receive  a  pension  equal  to  one  fifth 
of  the  yearly  earnings  of  the  deceased,  but  not  exceeding 
altogether  60  per  cent.    The  benefits  under  the  accident 

Insurance  law  .ire  the  most   liberal.1 

The  average  benefit  per  person  injured  and  entitled  to 
benefit  amounted  in  [910  to  160.51  marks  ($40.13).  The 
number  of  new  accident  pensioners  added  during  the  year 
was  132,064  and  the  total  number  of  pensioners  was  1,017,- 
570.  The  accident  frequency,  or  the  ratio  of  the  number  of 
new  cases  of  persons  injured  and  granted  pensions  to  the 
total  protected,  varied  from  2.4  per  1000  under  16  years  to 
14.:  per  1000  for  ages  60  to  70  in  industry,  construction, 
and  Beafaring  (1897),  and  from  2.5  to  10.3  per  1000  for  the 
same  age  groups  in   agriculture  and    forestry  (1901).* 

The  invalidity  insurance  law  gives  pensions  to  pffmfli 
Over  70  who  have  made  a  certain  minimum  number  of 
contributions  each  year  for  thirty  years,  with  liberal  tran- 
sition conditions  for  those  over  40  years  of  age  at  the  time 
the  insurance  went  into  effect.  The  old-age  pensions  vary 
from  $27.50  to  $57.50,  depending  on  the  wage  class  of  the 
contribution-  paid.  Persons  who  have  paid  contributions 
for  a  minimum  of  500  weeks  (200  weeks  if  the  contributions 

are  <  oin  pul -or v  ,  and  who  become  invalids,  receive  invalidity 

pen-ion-  depending  On  the  amount  of  contribution-  made.1 
Some  minor  bent  lit-  .ire  also  allowed.      Under  the  new  law 

1  (  f.  I  >.i\  .7  Insuran<>\  i  i  i  it 

ItTMNf,  (*)    7  v 

unmet,  138  d  nq.,  145.  hel  Slttitr, 

Grundriss  (Us  sozialm  VtrsicMtrmngsnchtS,  1H2  et  seq. 


[  III     HI  RDEN    IN    GERM  \N\ 


77 


of  191 1  invalid  widows  and  orphan  children  under  15  of 

insured  workmen  arc  given  .1  small  pension.     '  >n<-  or  two 
minor  benefits  are  also  allowed. 

The-  average  value  of  invalidity  pensions  newly  granted 
was  in  1910,  176.93  marks  >444<S).'  The  total  number  of 
invalidity  pensioners  in  i<u<>.  at  the  beginning  of  the  year, 
was  893,585,  to  which  114,679  new  pensions  were  added; 
old-age  pensions  numbered  102,362  on  January  1,  1910, 
and  11,612  new  ones  were  added  in  the  course  of  tin-  year.1 
New  sick  pensions  to  the  number  of  12. 263  were  granted  in 
1910;  18,502  were  current  .u  the  beginning  of  the  year. 
New  invalid  pensions  were  created  in  1910  at  tin  1 
732  per  100,000  insured,  tor  old  age  pensions  the  rate  was 
74  per  100,000,  and  for  sick  pensions  78  per  100,000. 3 

The  total  sums  contributed  by  employers,  workmen,  and 
the  State  are  shown  in  the  following  table.1 

The  legal  division  of  the  cost  varies  with   the  kind  of 
insurance.     Contributions  to  sickness  insurance  are  made 


TABLE   I 

COST  OF  GERMAN    SO  I  \l.   INSURANCE,   WITH  SOUR! 
I88S-I9IO 


Contributions 
of  Insured 

•  niitributions 
..:  1  inployers 

Subsidy 

Sickness  1n-ur.n1.  e 
Ac  ( i< lent  insurance 
Invalidity  insurance     

1910 

(In  millions  of 
marks) 

1885-IQIO 

(In  million-  "i 
marks) 

MM     2 

>5  0 
■   3 

An  millions  of 

mat 
639.8 

Total 

■\.z  :• 

;    <S 

1  Manes,  Somahtrsicktnmg,  711. 
-  Amtluhe  Nackricklen,  XXVII. 
1  Manes,  5  ■     '■-.ermz,  73. 

4  From  tables,  it>.  66 


300      I  I,  I9I 1 


91  N  I  \l     QTS1  I  w<  i 

\<\  employer  and  employee)  the  former  paying  one  third  and 
the  latter  two  thirds.  Premiums  are  assessed  according  to 
the  wage  dass  in  which  the  insured  person  belongs;  the 
amount  of  the  premium  may  not  <\.  .<-d  .1  maximum  per- 
centage ol  the  wages;  the  rate  of  assessmenl  varies  for 
different  funds,  for  different  average  wages,  with  average 
state  of  health,  and  especially  with  the  scale  of  benefits 
granted. 

The  cost  of  invalidity  and  old-age  insurance  is  met  by  the 
employer  and  employee,  each  paying  an  equal  share.     The 

State  contributes  in   addition   the  sum  of   fifty   marks  per 

year   to  each   pen-ion.    The  cost  of   accident   insurance 
-  with  the  degree  of  danger  of  the  industry,  each  trade 

having   its  Own   accident    fund,    the  cost    being  assessed  on 

the  mutual  principle.  It  is  borne  entirely  by  the  employer. 
\Y.  II.  Dawson  estimates  thai  an  average  contribution  for 
sickness  insurance  is  3.5  per  cent  of  t he  wage.  Of  this  the 
employer  pays  one  third,  or  1.17  per  cent  <>f  the  wage. 
Contributions  to  invalidity  insurance  prior  to  the  changes 
introduced  in  [911  constituted  between  .5  percent  and  1.5 
per  cent  of  the  wages,  depending  on  the  ratio  of  the  fixed 
premium  for  each  wage  class  to  the  actual  wage  received. 
The  ratio  is  somewhat  higher  in  the  case  of  unskilled  or 
low-paid  labor,  perhaps  from  .75  to  1.5  per  cent,  while  for 
skilled  labor  the  ratio  may  be  as  low  as  .s  per  tent.  Under 
the  new  law  giving  pensions  to  survivors,  the  cost  will  be 
somewhat  increased.  The  average  cost  of  accident  insur- 
ant e  for  industries  of  all  kinds  in  [909  was  equal  to  about 

1.72  per  cent  of  wages  paid.  I  or  the  mining  industry  in 
that  year  it  was  2.94  per  cent.1 

That  part  of  the  total  cost  of  social  insurance  for  working- 
men  which  falls  upon  the  employer  varies  between  2  and 
5.5  per  cent  of  his  wage  costs,  with  an  average  of  perhaps  4 
percent.     It  is  obvious  that  this  percentage  of  wages  will 
1  Dawson,  Social  Insurance,  209-214. 


11(1      Ml   KDI.N     IN    (il-.KMAN^ 


79 


not  constitute  the  same  amount  of  burden  in  all  Industries; 
the  relation  of  wages  toother  costs  is  of  essential  importance. 

TABLE   II 

INSURANCE  CHARGES  UPON  EMPLOYERS  STATED  AS  PER  CENTS  OF  WAGES1 


Industry 


Sickoea 


Accident         Invalidity 


Together 


Steel 

Iron  and  steel 

Locomotives  and  wagons.  . 

Locomotives 

Machine  tools 

Machinery 

Ditto 

Ditto 

I  k  al  engineering 

Ditto 

Automobiles 

Shipbuilding 

Coal  mining 

Ditto 

Chemicals 

Ditto 

Ditto 

Glass 

Paper 

Cotton  spinning  and  weav 

■ng 

Cotton  spinning 

Average 


i  04 


0.9 

1  . 1 


0.9 


19 


1. 13 


I.76 


2  .2 
1  . 1 


0.7 

2  4 
2.6 

a.  3 

05 


0.60 


0.6 
0.8 


0.6 
0.7 


0.7 


0.7 


0.67 


3-4 
3-7 

42 

3-7 

40 

3-7 
3   ' 


4.0 
2.2 


3-8 


1  Da  1  rial  Insurctur,  2\.\     Figurei  tie  foi  leading  ind 

Gran  gathered  from  Inquiry  in   1911, 

Figures  showing  thecosl  per  workman  per  yx  iven 

for  a  few  industries  by  I  tewson.     In  [907  the  Krupp  works 

paid  approximately  02  marks  per  employee,  apart  from  (he 


80  SOCIAl     INSURANCE 

large  contributions  made  to  its  own  pension  and  benefit 
funds.     Other  cases  are  shown  in  Table  III.1 

TABLE  III 

AL  COST  OF  INSURANCE   PER  EMPL 


Firm 

Annual  Contribution 
per  Employee 

(nearly)     37  marks 
48 

121 

Bergbaugcsellschaft  Neuessenof  Altessen 

«23 

The  association  of  Colliery  and  Smelting  Works  Owners 
of  Upper  Silesia  reported  (in  191 1)  a  cost  per  man  for  the 
year  1909  of  149.40  marks,  of  which  accident  insurance 
took  35.37,  sickness,  98.29,  and  invalidity,  15.04.2  This  is 
much  higher  than  for  most  industries,  amounting  as  it  does 
to  12  per  cent  of  the  wages  bill. 

The  sums  paid  have  tended  to  increase  as  the  benefits 
have  been  extended  and  as  the  wages  have  risen.  Figures 
for  the  Rheinische  Stahl  Industrie  illustrate  this  tendency; 
and  figures  for  the  Harburg  India  Rubber  Company,  which 
employs  largely  unskilled  labor,  indicate  that  the  cost  has 
not  increased  to  the  same  extent  for  lower  paid  workers. 

1  Cf.  Dawson,  Social  Insurance,  214-217. 

1  The  error  is  Dawson's,  who  gives  the  sums  in  pounds  sterling;  the 
figures  above  are  expressed  in  marks  at  the  rate  of  20  marks  to  a  pound. 


I  UK  BURDEN  IN  GERMAN!  8 1 

TABLE  IV 

COMPARATIVE  STATEMENT  OF  CONTRIBUTIONS  PAID  ON  ACCOIM  01  I  UK 
THREE  SYSTEMS  OF  CNSUKANCE  HV  THB  RHEINISCH  STAHL  IND1  >TRIE 
OF    R  KM  SCI  I  KID1 


Sickness 

Accident 

Together 

Year 

Invalidity 

Per 
Head 

Per  Cent 

01  Wages 

(Marks) 

(Marks) 

(Marks) 

Marks) 

Marks) 

1885' 

8.70 

8.70 

0.81 

i886» 

8-75 

4  65 

13-40 

1 .22 

18914 

9  23 

I3.il 

8-59 

30.93 

2-55 

1895 

9.62 

13  -55 

8 

50 

3I-67 

2.61 

1900 

10.10 

13  05 

8 

50 

31.65 

2.21 

1905 

10.28 

28.41 

8 

23 

46.92 

3  08 

1906 

15.40' 

2519 

8 

91 

49  50 

3   '  5 

1907 

12.87 

25  28 

10 

02 

48.17 

2 .91 

1908 

17. 036 

28.69 

9 

77 

55-49 

3  39 

1  Dawson,  Social  Insurance,  218. 
1  Introduction  of  sickness  insurance. 
'  Introduction  of  accident  insurance. 
6  Introduction  of  infirmity  insurance. 
6  Including  special  contributions. 

"  During  this  period  the  average  earnings  of  the  work-people  increased 
from  1080  marks  in  1885  to  1655  marks  in  1907,  falling  in  1908  to 
io33§  marks,  but  rising  again  in  1909  to  1658  marks." 


82 


SOCIAL    INSURANCE 


I \BLE   V 

COMPARATIVE  STATEMENT  OF  CONTRIBUTIONS  PAID  ON  ACCOUNT  OK  THE 
Illkli:  SYSTEMS  01  INSURANCE  BY  THE  HARBURG  INDIA  RUBBER 
COM  PAN  \l 


Year 

Sickness 
Insurance 

Accident 
Insurance 

Infirmity 
Insurance 

Together 

Per  Head  of 
Workmen 

Employed 

(Marks) 

(Marks) 

(Marks) 
[19OI] 

(Marks) 

(Marks) 

1890 

5.025 

6,432 

5,205 

16,662 

23  37 

1895 

6,262 

6,725 

6,017 

19,004 

21  .90 

I9O0 

10,097 

7,266 

9,660 

27,023 

19.22 

1901 

9.789 

7,877 

9,H9 

26,865 

20.26 

1902 

10,195 

10,001 

9,800 

29,996 

21  .21 

I903 

12,135 

1 1 ,903 

10,144 

34,i82 

23    56 

1904 

13.245 

12,723 

10,510 

36,478 

24  53 

1  Dawson,  Social  Insurance,  219.  (The  year  1901  in  brackets  for 
invalidity  insurance  1890  is  probably  meant  for  1891,  the  year  when  the 
invalidity  insurance  went  into  effect.) 

One  method  of  comparison  which  is  a  favorite  with 
employers  is  that  by  which  the  insurance  payments  are 
expressed  in  percentage  of  the  share  capital  or  of  the  divi- 
dends paid.     Some  illustrative  ratios  an  given  in  Table  VI.2 

TABLE  VI 

ANNUAL  COST  OF  INSURANCE  STATED  AS  A   PERCENTAGE   <  iF  CAPITAL 


Firm 


Per  cent 


Krupp 

Vulcan  Shipbuilding  Co 

Phoenix  (Mining  and  Smelting  Co.) 

Kolner  Bergwerksverein  of  Altessen 

Arenberg  Mining  and  Smelting  Co.  of  Essen 

Dahlbusch  Colliery  Co 

Bergbaugesellschaft  Ncuessen  of  Altessen .  . 
Essener  Steinkohlenbergwerke  A-G 


2 

7i 

3i 
5i 

4-4 
3-3 
6 

4-4 


1  lb.  214-216. 


THE    BURDEN    IN    GERMANY  83 

A  comparison  of  the  burden  of  insurance  in  its  various 
forms,  but  including  also  the  cost  of  voluntary  benefits 
and  welfare  work,  to  the  share  capital  and  to  the  dividends 
paid  is  shown  in  a  report  of  the  Hansa  Bund  for  304  large 
companies.  In  1909  it  amounted  on  the  average  to  2.14 
per  cent  of  the  share  capital  and  to  23.37  per  cent  of  the 
dividends.  The  figures  for  percentage  of  capital  are  con- 
siderably lower  than  those  given  above,  reported  by  Dawson. 
The  report  of  the  Hansa  Bund  also  compares  the  payments 
for  insurance  with  the  payments  made  by  the  industries  to 
state,  city,  and  empire  in  taxes.  The  latter  amounted  in 
1909  to  1.36  per  cent  of  the  capital  and  to  14.8  per  cent  of 
the  dividends.1  An  investigation  by  F.  Lenz  of  the  ex- 
penses of  the  Gelsenkirchen  Bergwerksaktiengesellschaft 
came  to  similar  results.  The  insurance  payments  are  about 
one  and  one  half  times  as  great  as  all  taxes  levied  upon 
industry.2 

The  proportion  of  premiums  paid  to  the  value  of  the 
output  is  obtainable  only  for  a  few  cases,  though  this  rela- 
tion is  of  most  importance  in  arriving  at  a  conclusion  as  to 
the  possible  shift  of  the  burden  to  the  consumer.  The 
Dahlbusch  Colliery  Co.,  of  Essen,  paid  insurance  contri- 
butions of  441,260  marks  on  an  output  of  1,059,000  tons  of 
coal  in  1909,  an  average  of  42  pf.  (10^  cents)  per  ton. 
The  Essener  Steinkohlenbergwerk  Aktiengesellschaft,  with 
an  output  of  1,814,906  tons  of  coal,  paid  for  insurance 
1,635,800  marks,  or  90  pf.  (22  cents)  per  ton.  The  Berg- 
baugesellschaft  Neuessen  paid  40  pf.  (10  cents)  per  ton  of 
output.  The  Association  of  Colliery  and  Smelting  Works 
Owners  of  Upper  Silesia  paid,  on  account   of  workmen's 

1  Denkschrift  des  Hansa  Bundes.  Die  offentlich-rcchtlichen  Bclastungen 
von  Gewerbe,  Handel  utid  Industrie,  8  (1912).  Cf.  note,  infra,  92. 
Cf.  Zahn,  Belastung  dutch  die  deutsche  Arbcitcrversichcrung,  in  /.ritschrift 
fiir  die  gesamle  Versicherungs-Wissenschaft,    XII.  11.(4. 

1  Lenz,  Zur  Frage  der  sozialen  Belastung  unscrer Industrie,  in  Schtnoller'  s 
Jahrbuch  fiir  Gesetzgebung,  Verwaltung  und  Volkswirtschafi  im  Pruts*  hen 
Reich,  XXXV.  1129-1142,  1 135  (191 1). 


84  SOCIAI     INSURANCE 

insurance,  12  cents  per  ton  <>t  entire  output,  of  which  3  cents 
went  for  accident,  8  cents  for  sickness,  and  1  cent  for  inval- 
idity insurance.1  (  ireissl  figures  the  cost  of  insurance  in 
the  beer  brewing  industry  as  not  over  10  pf.  (2}  cents  |kt 
hectoliter,  <>r  less  than  1  per  cent  of  the  wholesale  price.1 
Dr.  E.  Jungst  gives  data  for  the  anthracite  coal  industry  of 
Oberbergamtsbezirk  Dortmund,  showing  the  growth  of 
cost  of  insurance  since  1857,  the  earlier  figures  relating  to 
the  special  provision  for  the  mining  industry  which  was 
regulated  by  the  Prussian  law.  The  "social  contribute  ms,  " 
including  the  contributions  of  employers  as  well  as  of  em- 
ployed, amounted  in  1857  to  21  pf.  (5J  cents)  per  ton;  12  pf. 
in  1864;  in  1886,  26  pf.;  in  1894,43  pf«5  m  I9°4>  6opf.;and 
in  191 1,  80  pf.  To  give  the  amount  which  the  employers 
have  to  pay  the  figures  should  be  reduced  by  nearly  half. 
In  proportion  to  the  value  of  the  product,  the  "social  con- 
tributions" were  5.5  percent  in  1886,  6.8  per  cent  in  1894, 
7.2  per  cent  in  1904,  and  8.2  per  cent  in  191 1.  The  same 
correction  should  be  made  here  as  above.8 

Branchart  gives  a  table  based  on  the  returns  of  a  number 
of  large  firms  in  various  lines  of  manufacture.  The  ratio 
of  the  contributions  of  employers  to  social  insurance  to  the 
total  selling  value  of  the  product  ranged  from  0.33  per  cent 
to  1.8  per  cent  in  1900,  from  0.41  per  cent  to  2.75  per  cent  in 
1905,  and  from  0.34  per  cent  to  2.21  per  cent  in  1912.4 

Does  this  burden  constitute  a  handicap  upon  German 
industry?  Perhaps  the  best  method  of  treating  this  ques- 
tion of  the  effect  of  the  burden  in  Germany  is  to  give  the 

1  Dawson,  Socitil  Insurance,  215-217. 

1  Greissl,  Wirtsihaftliche  Untersuchung  iiber  die  Belastung  der  deut- 
schen  Industrie  durch  die  Arbeiterversicherungs-und  Schulzgesetz-gebung, 
in  Schmoller's  Jahrbuch,  XXIII.  855-912,  884,  865  (1899). 

1  Jungst,  Die  Leistungen  des  Ruhrbergbaues  auf  dem  Gebiete  der  sozialen 
Zwangsversicherung,  in  Gluckauf.,  XLIX.  251  (1913). 

1  Branch. irt,  Zur  Frage  der  Belastung  der  deutschen  Industrie  durch  die 
Arbeitervcrsicherung,  in  Zeitschrift  fur  die  gesamle  Versicherungs-Wissen- 
schaft,  XIV.  4«o  (July  1914)- 


THE    BURDEN    IN    (.KKM.WN 


85 


TABLE   VII 

COMPARISON   OF  EXPENDITURE  FOR  WORKMEN'S  Q»S1  KAN(  I    TO  SELLING 
VALUE    OF    PRODUCT1 


Kind  of  Business 


Per  cents  that  Contributions  make  of 
Selling  Value  of  Product 


Machine  works 

Machine  tool  company 

Brewery 

Machine  factory 

Portland  cement  works 

Cotton  spinning  and  weaving 
mill 

Mine  and  smelting  works 

Large-machine  factory 

Cotton  spinning  mill 

Mechanical  cotton  spinning  and 
weaving  mill 

Dairy 

Gas  engine  works 

Spinning  mill 

Powder  mill 

Chocolate  factory 

Writing  and  accounting  mate- 
rials  

Mining  association 

Mining  association    

Large-machine  factory 

Manufacture  of  explosives 

machine  factory 


1900 

0.92 

1.8 

0.8 

0.6 


0.6 
0.61 
0.71 
0.25 

0.4 

0.67 
0.52 
0.58 
0.48 

0.33 

1  .50 
1.48 

033 
0.42 
0.83 


1905 

1910 

0.87 

0.98 

0.8 

1   1 

0.7 

0.7 

I  .2 

1.05 

I     I 

0.9 

O.6 

07 

O.83 

1   45 

1.30 

1  .29 

0-33 

0-34 

05 

0.7 

0.99 

0.78 

0.52 

0.74 

0.57 

039 

0.63 

065 

0.41 

0.4.S 

2.75 

251 

-  53 

2    |i 

0.90 

0  75 

0.68 

O.76 

1. 14 

1    25 

1912 
0.87 
I .  I 

0.6 

0.93 
0.9 

0.7 
1.38 

1. 18 
0.32 

0.6 

0.41 

0.72 

0.79 
0.34 
0.75 

0.44 

2.21 
2.06 
O.79 
O.62 
1     [0 


1  Branchart,  /.ur  Frage  der  Belastung  der  deutschen  Industrie  durch  die 
Arbeiterversicherung,  in  Zeitschrift fir  die  gesatnte  Versicherw 
schaft,  XIV.     478. 

history  <>f  the  discussion  on  the  subject  and  to  present  the 
conclusions  reached  by  those  best  informed  on  the  situation. 

The  discussion  will  necessarily  include  a  treatment  of  some 
of  the  theoretical  difficult  it's  and  will  form  an  appropriate 
introduction  to  the  general  theoretical  problems  of  the 
following  chapter. 


86  SOCIAI     INSURANCE 

The  first  .it tempt  to  answer  the  question  and  to  get  con- 
crete evidence  upon  the  industrial  effects  of  social  insurance 
in  Germany  was  made  in  1899  by  Greissl,  the  director  of  a 
factory  in  Munich.1  The  main  conclusions  which  he  reached 
were  aa  follows:  The  maximum  limits  of  the  burden  upon 
the  employers  form  such  a  small  percentage  of  the  wage  and 
especially  of  the  selling  price  that  it  is  of  no  decisive  impor- 
tance even  to  producers  competing  for  the  foreign  market. 
He  estimated  that  the  highest  cost  for  accident  insurance 
even  in  the  most  dangerous  trades  would  not  be  over  3  per 
cent;  sickness  would  cost  about  l\  per  cent  and  invalidity 
insurance  1  per  cent  of  the  wage  cost, — in  all  53  per  cent. 
This  represents  in  terms  of  the  final  price  but  1  per  cent  or 
less.  He  found  that  in  the  majority  of  cases  this  increase  in 
cost  would  not  be  sufficient  to  affect  price  at  all.  In  actual 
practice  it  is  met  or  made  up  for  by  improvements  in  meth- 
ods and  technique  of  production  by  means  of  which  expenses 
can  be  lowered.  The  introduction  of  social  insurance  was 
simply  a  spur  to  the  discovery  of  new  methods,  elimination 
of  waste,  and  improvements  in  production.  He  appeals  to 
the  facts  of  a  continuous  increase  of  wages  for  15  years,  the 
expansion  of  industry,  and  the  increase  of  exports — which 
could  hardly  have  taken  place  had  the  cost  of  insurance 
proved  a  "burden" — to  bear  out  these  conclusions.  A 
period  of  economic  expansion  is  the  most  favorable  time  to 
introduce  such  reforms,  but  Greissl  thinks  that  even  if 
conditions  had  been  unfavorable  and  the  market  depressed, 
insurance  would  have  constituted  no  real  burden  upon 
German   industry. 

Costs  of  manufacturing  a  product  cannot  be  estimated 
beforehand  with  any  degree  of  certainty.  Prices  and  the 
quality  of  raw  materials  in  the  beer-brewing  industry,  for 
example,  may  vary  so  much  as  to  make  a  difference  of  10 
to  20  per  cent  in  the  cost  of  production  over  a  series  of 

>  issl,     Wirtschaftliche    UnUrsuchungen,   in    Schmoller  s    Jahrbuch, 
XXIII.  855-912  (i8m). 


THE    BURDEN    IN    GERMANY  87 

years.  Over  against  these  variations  an  item  of  only  1  per 
cent  of  the  price  is  insignificant.  With  regard  to  the  fear 
of  foreign  competition  Greissl  urges  that  the  argument 
assumes  either  that  prices  will  rise  and  home  producers  will 
be  eliminated,  or  that  profits  will  fall  and  they  will  stop  work. 
The  amount  of  the  burden  is  so  small  that  it  can  have  prac- 
tically no  effect  upon  prices,  and  any  manufacturer  who  pro- 
duces for  the  foreign  market  must  have  a  profit  in  expecta- 
tion so  much  in  excess  of  this  amount  that  it  would  make 
little  difference  if  it  did  reduce  profits.  The  latter  alter- 
native, moreover,  presupposes  that  it  will  be  impossible  to 
make  up  the  amount  in  other  ways.  Finally,  the  export 
trade  utilizes  only  a  small  part  of  total  production,  employing 
at  most  not  over  15  per  cent  of  the  insured  workmen,  and, 
with  the  exception  of  the  sugar  industry,  the  burden  result- 
ing from  accident  insurance  in  exporting  industries  is  con- 
siderably lower  than  the  average.  In  the  home  market  all 
domestic  producers  are  similarly  situated  and  at  most  the 
insurance  could  only  result  in  an  increase  in  prices. 

In  answer  to  the  objection  that  though  costs  may  have 
been  decreased  by  improvements  in  production  these  im- 
provements would  have  taken  place  anyway  and  would  have 
meant  an  increase  in  profits,  Greissl  urges  that  it  would  not 
be  fair  to  conclude  that  the  cost  really  comes  out  of  the 
profits  of  the  enterpriser,  because  such  an  increase  of  profits 
would  be  only  temporary  and  would  quickly  be  reduced  to 
the  normal  level  by  competition. 

Greissl's  study  is  one  of  the  best  that  has  been  made.  As 
to  the  actual  amount  of  the  cost  of  social  insurance  there  is 
no  controversy.  Writer  after  writer  appeals  to  the  fact 
of  the  expansion  of  industry  and  the  increase  of  wages  to 
substantiate  the  conclusion  that  the  payments  do  not  handi- 
cap the  German  producer.  It  may  Ik-  quite  true  that  a 
cost  item  of  only  1  per  cent  of  the  prit  e  is,  in  view  of  the 
variability  of  the  other  factors,  of  no  special  consequence  in 
any  one  year;  but  it  is  not  clear  that,  as  Greissl  assumes,  a  1 


88  SOCIAL    INSURANCE 

per  cent  increase  of  cost ,  as  a  regularly  recurring  item,  would 
not  make  a  substantial  difference  over  a  period  of  years. 
He  emphasizes  the  advantage  (from  the  point  of  view  of 
the  workers)  in  the  specification  by  law  of  the  minimum 
benefits  which  the  employers  and  the  different  funds  have 
to  grant.  Otherwise,  he  says,  in  case  of  business  depression 
there  might  be  danger  that  the  benefits  would  be  curtailed 
and  the  workers  suffer.  But  he  overlooks  the  possibility 
that  wages  may  be  reduced  as  a  factor  in  cost  or  that  wages 
may  now  not  be  so  high  as  they  would  have  been  if  no  social 
insurance  had  been  introduced. 

Professor  Friedrich  Zahn,  in  his  excellent  description  of 
German  Workingmen's  Insurance  written  for  the  Paris  Ex- 
position in  1900,1  treated  of  the  effect  of  the  institution 
upon  industry.  He  points  to  the  fact  that  it  is  not  in  every 
case  a  new  pecuniary  burden,  for  many  employers  had 
made  provision  for  employees  before.  As  against  other 
factors  affecting  business,  the  burden  of  social  insurance  has 
been  negligible.  In  fact,  he  argues,  the  other  factors, — 
prices,  quality  and  cost  of  raw  materials,  wages,  freight 
rates,  changes  in  the  market  for  capital,  exchange,  and  tariff 
policies, — have  been  so  favorable  on  the  whole  that  a  great 
expansion  of  German  trade  has  taken  place.  The  export 
industries  have  not  suffered.  The  new  burden  has  been  a 
partial  cause  of  the  improvement  in  the  technique  of  indus- 
try. In  any  case,  he  thinks,  there  can  be  no  talk  of  a 
shifting  of  the  burden  on  to  the  workers,  whose  wages  have 
in  general  risen  greatly,  nor  has  the  burden  been  shifted, 
through  an  increase  of  prices,  to  consumers.  There  may, 
however,  have  been  a  slight  shifting  of  production  from  the 
factories  to  domestic  industry  in  certain  lines,  owing  to  the 
exemption  of  the  latter  at  first  from  the  payment  of  insur- 
ance premiums. 

Paul  Steller  takes  the  position  that  the  employers  are 

1  Lass  and  Zahn,  Einrichtung  und  Wirkung  der  deulschen   Arbeiter- 
1   00). 


THE    BURDEN    IN    GERMANY  89 

seriously  burdened  by  the  expenditure  for  social  insurance 
and  public  taxes.  This  view  he  proceeds  to  support  by 
showing  the  relation  of  the  "public  burdens"  to  dividends 
paid.  In  some  cases,  according  to  the  published  reports 
of  stock  companies,  they  are  equal  to  60  per  cent  or  more. 
In  the  case  of  one  mining  company  a  serious  reduction  in 
dividends  is  attributed  by  Steller  to  the  weight  of  the  public 
burdens.1 

Professor  Herkner  criticizes  the  term  "public  burdens" 
as  used  by  Steller.  It  seems  to  have  included  state  and 
local  taxes,  contributions  to  the  chambers  of  commerce, 
insurance  premiums,  and  voluntary  contributions  to  welfare 
work.  He  makes  the  further  point  that  it  is  misleading  and 
unwarrantable  to  compare  the  "burdens"  with  dividends 
paid,  for  these  last  do  not  necessarily  correspond  to  net 
income  but  may  depend  rather  upon  the  dividend-paying 
policy.  Dividends  would  not  have  been  higher  in  the 
absence  of  contributions,  because  of  the  action  of  competi- 
tion in  reducing  profits  to  an  average  level.2  Professor 
Herkner  urges  that  companies  in  the  export  industries, — 
the  chemical,  coal  and  iron,  and  textile  industries,  for  ex- 
ample,— have  paid  rather  higher  dividends  than  the  average 
for  all  stock  companies.3     Further,  there  are  compensating 

1  Professor  Herkner  shows  it  was  due  to  special  conditions  affecting 
the  business.  Die  sozialen  hasten  der  deutschen  Industrie  in  neuer 
Belcuchtung,  in  Preussische  Jahrbuclier,  CXLIV,  109-10  (1911). 

Articles  by  Steller: 

Das  Uebermass  der  offentlichen  hasten  der  Industrie  in  Dt  utsehland. 
(Koln,  1910). 

Erhohung  tier  Gestehungskosten  der  deutschen  Industrie  dutch  d\ 
zinlen  hasten,    Eine  Antwori  an  Herrn  Prof.  Dr.  II.  Herkner.     (Koln, 
1911). 

Das  Unternehntertum  und  die  dffentlichen  Zustdnde  in  Deutschland. 
Eine  Zeitbetrachtung.     (Berlin,  [911). 

2  Herknir,  Die  d(Tent!iil:en  hasten,  in  I'reussisehe  Ja'nrbueh.er,  C'XI  II. 
539-43  (I9IO)- 

*  Herkner,  Die  Belastung  der  Industrie  im  In-  und  Auslande,  in  Preus- 
sische Jahrbiieher,  (XII 1 1.  167  (19II). 


90  SOCIAL    INSURANCE 

burdens  laid  upon  foreign  industry.  In  England  the  poor 
rate  is  extremely  heavy,  and  the  recent  increase  in  taxes 
for  social  purposes,  including  the  pensioning  of  the  aged 
and  the  establishment  of  the  new  social  insurance,  more 
than  equalizes  matters.  In  America,  wages  are  enough 
higher  to  compensate  for  the  burden  of  social  insurance  in 
Germany.1  With  reference  to  the  alleged  emigration  of 
capital  Herkner  holds  that  the  tariff  policies  and  patent 
laws  are  more  important  as  forces  inducing  enterprisers  to 
build  factories  abroad.  The  social  "burdens"  are  a  minor 
matter.2  In  short,  the  export  industry  of  Germany  is  not 
suffering,  the  home  producers  for  the  home  market  are  all 
burdened  alike  and  they  can  secure  the  extra  cost  from  the 
consumer.  There  is  therefore  no  ground  for  the  claim  that 
industry  is  overburdened. 

Professor  Herkner's  arguments  suggest  the  complexity  of 
the  whole  question.  If  all  the  different  conditions  of  pro- 
duction in  different  countries, — differences  in  wages,  differ- 
ences in  taxation  and  its  incidence,  differences  in  other  costs, 
— must  be  taken  into  consideration,  it  is  quite  clear  that 
there  can  never  be  any  very  definite  statistical  answer  to  the 
question.  For  practical  purposes  the  establishment  of 
social  insurance  and  the  consequent  increase  of  the  burden 
upon  industry  must  be  justified,  if  at  all,  by  actual  results. 
The  general  point  made  by  Professor  Herkner  seems  to  be 
that  social  insurance  burdens  are  not  a  decisive  industrial 
factor,  either  because  similar  insurance  exists  abroad  or 
because  there  are  other  compensating  costs.  German 
industry  is  not  seriously  handicapped  in  foreign  trade,  and 
in  the  competition  for  the  home  market  all  the  producers 
are  subject  to  insurance.  His  statement  that  the  higher 
wages  paid  in  America,  where  there  is  no  social  insurance, 

1  "  If  the  wages  of  the  English  workers  in  the  metal  industry  are  placed 
equal  to  ioo,  the  wages  paid  in  Germany,  according  to  Shadwell,  would 
range  between  65  and  78,  and  in  America,  161  to  169."  Herkner,  Die 
Belastung  der  Industrie  im  In-und  Auslavde,  in  Preussiche  Jahrbucher, 
CXLII.  541. 

»Ib.  CXLIII.  170. 


THE    BURDEN    IN    GERMANY  9 1 

are  a  compensating  factor,  suggests  the  possibility  that 
insurance  costs  in  Germany  may  really  have  been  shifted 
to  the  workers.1 

An  excellent  monographic  study  was  published  in  191 1 
by  Friedrich  Lenz.2  It  analyzes  the  expenses  and  income 
of  a  coal  mining  company,  the  Gelsenkirchen  Bergwerks- 
Aktien-Gesellschaft,  which  employed  on  an  average,  in 
1905  to  1909,  46,000  workmen.  By  a  careful  study  of  the 
special  conditions  under  which  this  particular  firm  operated, 
of  the  variations  and  growth  of  the  amounts  paid  for  social 
insurance  and  for  taxes,  of  variations  in  market  conditions, 
of  the  growth  of  business,  of  changes  in  wage  rates,  in  gross 
and  net  income,  in  dividends  paid,  capital  invested,  etc., 
the  conclusion  is  reached  that  the  ratio  of  the  social  burden 
to  "gross  income,"  i.e.  income  before  operating  costs, 
taxes,  insurance  contributions,  and  depreciation  have  been 
deducted,  expresses  most  fairly  the  weight  of  the  burden.3 
For  the  particular  company  under  consideration  the  pay- 
ments for  social  insurance  plus  taxes  equalled  two  tenths  of 
the  "gross  income"  and  three  tenths  of  the  charges  deducted 
from  it.  The  amounts  required  for  insurance  have  in- 
creased much  faster  than  the  "gross  income."  He  finds, 
however,  no  special  effect  on  dividends  traceable  to  the 
imposition  of  these  payments.4 

1  "Man  kann  es,  wie  es  in  Nord-Amerika  der  Fall  ist,  den  Arbeit  cm 
iiberlassen,  selbst  fiir  ihre  Versicherung  zu  sorgen  und  bei  Unfallcn 
Haftpflichtklagen  gegen  ihre  Arbeitgeber  anztistrengen.  Unter  diesen 
Voraussetzungen  miissen  die  Arbeiter  hohere  Lohne  beziehen.  Dasa 
sie  tatsachlieh  in  Amerika  unverhaltnismassig  hoher  sind,  ist  zur  Genfige 
bekannt."  Herkner,  Die  offentlichen  Lasten,  in  Preussische  Jahrbiicher, 
CXLII,  541  (1910). 

1  Lenz,  Zur  Frage,  in  Schmollet's  Jakrbuch,  XXV.  1129-1142. 

3  lb.  1 140.  It  may  also  be  compared  to  total  expenses — oper.u  Ing 
costs,  taxes,  insurance  contributions,  and  depreciation — or  to  the  value 
of  product. 

4  Lenz  summarizes  his  arguments  in  the  following  words:  "While 
therefore  the  increase  of  the  social  burden  shows  no  perceptible  con- 
nection with  the  amount  of  divi  tends  declared,  we  Bee  1>>  closet  ex  im- 


02  SOC3A]     tNSURAl 

In  1912  the  Il.msa  Bund  published  figures  for 304  stock 
companies  Bhowing  the  amount  and  relation  of  insurance 
pa\  ments  and  taxes  to  di\  idends  det  lared,  for  the  ten  years 
1900-1900.1     lor  the  la>t    year  the  insurance  premiums 

were  equal  in  amount  to  one  fifth  of  the  dividends,  having 
increased  from  about  14  per  cent  in  i<)oo.  In  two  or  three 
industries,  especially  in  the  mining  industry,  the  average 
»ver  50  per  cent  of  the  dividends.  Compared  with  .ill 
taxes  paid  !>y  these  companies,  the  contributions  for  insur- 
ant c  were  Dearly  half  as  large  again.  In  view  of  the  state- 
ment of  Professor  Herkner  that  the  stock  companies  ire 
more  heavily  burdened  with  taxes  than  other  forms  of 
indusl  rial  enterprise,1  the  relation  of  insurance  to  taxes  may 
be  somewhat   lower   than   the  average.     The  comparison 

ination  that  it  is  the  economic  conditions  and  the  temporary  state  of  the 
market  at  the  time  which  influences  now  as  formerly  the  increase  and 
decrease  of  the  rate  of  profit.     .     .  The  excess  of  value  per  ton 

rises   and  falls  corresponding  to  the  selling  price  received,  while  the 

ht "  of  the  social  burdens  in  s]>ite  of  its  absolute  increase  falls  in 
time  of  prosperity  and  increasing  surpluses,  but  rises  IB  times  of  depres- 
sion and  weakening  selling  prices."      lb.  318. 

1  Die  dffentHck-recktlichen  Brla^tungen.  (1912).  Jiingst  criticizes 
this  report  on  the  ground  that  it  leaves  it  an  open  question  whether 
or  nut  the  contributions  of  the  employees  as  well  as  those  <»t  the 
employers  are  included.  Jiingst  himself  proceeds  to  include  them  and 
the  two  together  as  the  "burden."  The  introduction  to  the 
Hansa  Bund's  report  runs  as  follows:  "In  den  folgenden  Tabellen  >ind 
fur  die  einzelnen  grosseren  Wirtschaftsgruppen  die  staatlichen,  Gem- 

und  sonstigen  Abgaben  Bowie  die  Beitrflge  zm  Sorialversicherung 
in  absoluten  Zahlen.  .  .  ."  This  would  naturally  mean  the  con- 
tribution of  employers  to  the  three  forms  of  insurant  e;  if  it  in  luded 

of   the  workers   too   the    title    of    the    reporl    would    be    a    mis- 

The  study  of  I ■'.  Lenz  ^ i \  <  s  for  a  large  coal  mine  a  ratio  of 

employers'  contributions  to  insurant  e  to  1  be  tax  paj  ments  <>f  2  to  1  for 

1907  1}  to  I.      The  ratio  of  contribution-  of  both  employi  I 
emplo  [909  was  2}  to  1  (1907:  estimated  3 J  to  x).    The 

I  figures  the  average  contribution-  for  the  mining  industry 

rly  three  times  as  great  as  the  tax  burden. 

rkner,  Die  offentlichen  Lastcn,  in  Preussische  Jahrbiicher,  (XI. II. 
540. 


I  in     1:1  MM  N    IN    GERMANY 

may  be  misleading  in  this  respect:  a  large  part  of  the  taxes 
are  levied  on  net  income  and  according  to  accepted  theory 
cannot  be  shifted;  the  insurance  payments  are  levied  with 
the  expectation  that  they  will  not  be  borne  by  the  enter- 
prisers themselves. 

W.  H.  Dawson  treats  of  the  costs  of  insurance  in  one 
chapter  of  his  excellent  description  of  German  working- 
men's  insurance.1  He  concludes  from  the  facts  of  great 
expansion  of  industry,  increase  of  wages — in  comparison  to 
which  the  increase  of  insurance  premiums  is  insignificant — 
and  from  the  extension  of  insurance,  that  the  system  is  not 
a  handicap  upon  German  industry.  He  quotes  from  a 
speech  of  E.  Schmidt,  a  representative  of  the  tobacco  trade: 

In  any  event,  it  is  certain  that  it  is  hardly  possible  to  speak  of  these 
insurance  contributions  as  constituting  any  special  burden  on  industry, 
for  if  you  regard  the  sum  so  paid,  not  as  a  percentage  of  wages,  but  of 
the  year's  turnover,  it  does  not  exceed  $  per  cent.,  so  that  in  calculating 
the  cost  of  goods  that  is  the  extent  of  the  expense  to  be  allowed  for. 
That  is  so  small  a  sum  that  it  is  neither  right  nor  just  to  make  a  noise 
about  it,  and  pretend  that  we  can  no  longer  pay  it  if  our  workpeople  ire 
to  have  increased  benefits  by  new  insurance  legislation.  Speaking 
honestly,  as  one  employer  to  another,  I  am  of  opinion  that  the  invest- 
ment in  these  insurance  contributions  is  not  a  bad  one.2 

Professor  Zahn,  writing  in  1912,  emphasizes  the  same 
points.  He  appeals  to  the  flourishing  condition  of  German 
industry,  to  the  additional  voluntary  expenditures  of  em- 
ployers for  pension  systems  and  welfare  work,  and  to  the 
great  increase  in  the  wages  of  workmen  for  proof  thai  <  ier- 
man  producers  have  been  able  easily  to  bear  the  burden  of 
social  insurance.  He  places  against  the  outlay  <>n  the  part 
of  employers  the  direct  and  indirect  benefits  resulting  from 
insurance,  and  holds  that  the  betterment  in  the  health  of 
workingmen  and  in  their  attitude  toward  their  work  have, 
by    increasing    their    productivity,    contributed    no    little 

1  Dawson,  Social  Insurance. 
1  lb.  235. 


94  SOCIAL    INSURANCE 

toward  making  possible  the  expansion  of  German  industry.1 
E.  Jiingst  has  furnished  a  few  details  about  the  burdens 
upon  the  anthracite  coal  mining  industry.  Here  it  is  no 
new  burden,  having  been  imposed  as  early  as  1857.  The 
cost  has  grown  greatly,  however,  in  the  last  few  years.2 

In  a  contribution  to  the  Preussische  Jahrbiicher  in  191 3, 
Lenz  comes  to  the  conclusion  that  there  is  really  no  doubt 
with  reference  to  the  general  ability  of  German  industry  to 
hold  its  own  with  foreign  competition.  The  advisability 
of  social  insurance  is  no  longer  an  open  question.  But  the 
individual  establishment  and  the  individual  industry  may 
suffer.  In  this  case  the  question  is  not  that  of  the  abolition 
of  social  insurance  in  general,  but  merely  that  of  methods  of 
lightening  the  weight  of  the  burden  for  the  particular 
industry.3 

A  detailed  investigation  made  in  1913  by  the  same  writer, 
into  the  effect  of  the  burden  of  social  insurance  and  taxes 
upon  the  profitableness  of  the  Schultheiss  Brewery,  is 
especially  interesting  because  of  the  unusual  ratio  of  insur- 
ance to  taxes,  and  because  of  the  very  great  increase  in  the 
weight  of  the  latter  since  the  tax  reforms  of  1906  and  1909. 
The  proportions  which  social  insurance  contributions  plus 
taxes  bear  to  total  expenditures  and  to  gross  income  are 
shown  in  Table  VIII.  For  the  first  period,  from  1870-75 
to  1901-05,  the  "public  burdens"  formed  a  constantly 
decreasing  per  cent  of  expenses  and  of  gross  income.     Yet, 

1  Zahn,  Belastung  durch  die  deutsche  Arbeiterversicherung,  in  Zeit- 
schrift  fur  die  gesamte  Versicherungs-Wissenschaft,  XII.  1126-1160  (1912). 

2  Jiingst,  Die  Leistungen  des  Ruhrbergbaues,  in  Gliickauf.,  XLIX,  249- 
256;  292-297;  327-337  (1913).  Curiously  enough,  he  compares  the 
amount  of  "social  contributions,"  including  payments  of  workers  as 
well  as  of  employers,  with  the  value  of  product,  as  though  the 
employers  had  to  pay  the  contributions  of  the  workmen  as  well  as 
their  own. 

'  Lenz,  Sozialpolitik  und  Unternehmertum:  Zugleich  ein  Beitrag  turn 
Methodenstreit  in  der  Privatwirtschaftslehre,  in  Preussische  Jahrbiicher, 
CLII.     313-322,  especially  3H-3I5- 


THE    BURDEN    IN    GERMANY  95 

in  spite  of  the  decline  of  the  burden  during  the  first  three 
five-year  periods,  there  is  no  effect  shown  on  the  dividends. 
The  present  level  of  dividends  was  reached  in  1886-90  at 
a  single  leap,  though  the  effect  of  the  extension  of  com- 
pulsory social  insurance  commences  for  this  period.  Since 
1906  the  proportion  of  taxes  plus  insurance  contributions 
to  the  total  expenditure  and  gross  income  has  doubled 
and  nearly  tripled,  yet  it  seems  to  have  had  little  or 
no  effect  upon  dividends.  Social  insurance  contributions 
were  5.6  per  cent  of  the  sum  of  insurance  plus  taxes  in 
1881-90.  They  rose  to  a  maximum  percentage  of  10.6 
in  1901-05;  sinking  after  the  taxes  levied  directly  upon  beer 
were  raised  (though  the  proportion  of  social  insurance  con- 
tributions to  wages  had  itself  increased)  to  6.7  per  cent  in 
1906-08  and  to  3.5  per  cent  in  1909-11.  The  brewing 
industry  has  adjusted  itself  to  a  special  increase  of  taxation 
without  appreciable  change  in  its  ability  to  pay  dividends. 
And  this  increase  was  so  heavy  as  to  make  the  weight  of 
the  burden  of  social  insurance  seem  insignificant  in  com- 
parison. Besides  the  compulsory  social  insurance  contri- 
butions, fairly  large  sums  are  expended  voluntarily  for  the 
welfare  of  the  working  men.1 

1  Lenz,  Die  soziale  Geschichte  des  Schaltheiss-Brauerei ,  in  Archiv  fur 
Sozialwissenschaft  und  Sozialpolitik,  XXXVII.  175-214  (19 13).  He 
summarizes  the  results  of  his  study  as  follows:  "We  may  summarize  as 
the  final  result  of  the  second  period:  first,  that  the  two  increases  of  the 
tax  on  beer  brought  a  temporary  diminution  of  profit,  but  no  shrinking 
of  the  basis  of  existence  of  the  industry;  and  that  the  rate  of  profit  was 
influenced  primarily  by  market  conditions,  weather,  and  wages,  and  only 
in  secondary  degree  by  the  special  social  legislation;  the  economic  and 
natural  factors  have  shown  themselves  more  important  than  the  social 
factors  in  this  exceptional  case.  Secondly,  the  amounts  paid  for  public 
purposes  in  the  brewing  industry  show  a  tendency  to  fall  when  the  tax- 
rate  remains  the  same.     lb.  198. 


96 


SOCIAL    INSURANCE 


TABLE   VIII 

U  1  All  VI    Ui  1-.H1  or  "public  burdens,"  schultheiss  brauerei, 
I870-I9I21 


"  Public  Burdens  "  in  Percentage  of 

Period 

Total 
Expenditure 

Grots 
Income 

Average 
Dividend 

I870-75 

33-4 

19.0 

8.8 

1876-80 

24.8 

16.O 

9.0 

1881-85 

25-3 

18.5 

8.8 

1886-90 

22.2 

15-7 

14.8 

1891 

16.0 

12.7 

14.6 

1896-OO 

16. I 

13.2 

15.0 

1901-05 

15-4 

12.8 

15-4 

1906-07 

24  3 

20.7 

17.0 

1907-08 

23 .0 

20.3 

14.0 

1908-09 

23 -7 

20.4 

14.0 

1909-IO 

35-0 

30.8 

14.0 

I910-II 

35-1 

3i  3 

15  0 

1911-12 

34-8 

31.2 

150 

'lb.  192,  197. 


TABLE   IX 


RELATIVE  importance  of  social  insurance  and  taxes, 

SCHULTHEISS  BRAUEREI   I870-I9II1 


Percentage  of  "Public  Burdens"  represented  by 


Period 

Social  Insurance 

Taxes 

1870 

0.5 

99-5 

I87I-75 

I  .2 

98 

8 

1876-80 

2.6 

97 

4 

1881-90 

5-6 

94 

4 

1891-95 

77 

92 

3 

1896-OO 

7-5 

92 

5 

1901-05 

10.6 

89 

4 

1906-08 

6.7 

93 

3 

I909-II 

3  5 

96 

5 

1  lb.  200. 


THE    BURDEN    IN   GERMANY  97 

Three  papers  by  Potthof  deserve  mention.1  Potthof's 
viewpoint  is  in  general  like  that  of  Professor  Zahn,  but  he 
puts  more  stress  on  the  positive  advantages  of  insurance. 
He  finds  that  the  workmen  have  received  in  benefits  much 
more  than  they  have  paid  in  contributions,  so  that  there 
cannot  be  any  serious  talk  of  "burden"  here.  The  em- 
ployers have  received  some  return  in  the  betterment  of  the 
health  and  the  good  will  of  their  workers.  The  burden  on 
the  state  has  been  partly  offset  by  diminution  in  the  cost  of 
poor  relief.2  In  many  cases  the  employers  have  probably 
shifted  the  cost  to  consumers  by  a  slight  increase  in  price. 
The  total  increase  in  price  is  not  equal,  however,  to  the 
total  amount  of  contributions  paid  by  employers.  The 
purchasing  power  of  the  working  class  has  been  diminished 
by  the  amount  of  the  premiums,  but  this  is  more  than  offset 
by  the  amount  received  in  pensions.  Accumulation  of 
capital  in  invalidity  insurance  has  resulted  in  loans  to 
building  associations,  hospitals,  employment  bureaus,  and 
all  sorts  of  welfare  work  to  the  advantage  of  workmen. 
Insurance  has  been  a  great  step  toward  an  economy  of  the 
human  factor  in  production.  From  the  national  point  of 
view  it  is  worth  much  more  than  it  has  cost.  Here  social 
measures  of  cost  are  introduced  in  the  discussion  of  the 
economic  weight  of  the  burden. 

Finally  Branchart  has  reviewed  the  whole  question  once 
more.3  He  first  considers  the  argument  that  the  increase  in 
the  relative  number  of  cases  where  the  compulsory  collec- 

1  Potthof,  Wer  tragi  die  Kosien  der  sozialen  Versicherun*?  in  Schriften 
der   Vereins  fur    Sozialpolitik,    CXXXVII.     Pt.    4,    281-288,     (1913). 

Kernfrage  sozialer  Versichcrung,  in  lihrenzweig's  Assckur.inz-Jnhrbuch, 
XXXIV.     Pt.  2,  75-89  (1913). 

Die  Kosten  der  sozialen  Versicherung  und  Hire  Ueberwalzunz,  in  Si 
(Ehrenzweig's)  Assekuranz-Jahrbuch,  XXXV.      Pt.    2,  98    119(1914). 

2  Zahn  treats  of  the  effect  of  insurance  upon  workmen's  budgets,  and 
upon  the  state. 

3  Branchart,  Zur  Frage  der  Belastung,  in  Zeitschrift  fur  die  gesamte 
Versichcrungs-Wi^srnu  haft,   XIY,  475-492   (1914). 

8 


98  SOCIAL    INSURANCE 

tion  of  accident  insurance  assessments  is  necessary  sli<>w- 
that  the  burden  is  growing  too  heavy  for  industry  to  bear. 
Investigation  of  this  question  in  the  case  of  several  accident 
insurance  funds,  especially  in  the  building  trades,  shows 
that  there  is  no  marked  increase  in  the  proportion  of  such 
cases  but  merely  an  irregular  variation.  The  proportion 
of  cases  where  resort  is  had  to  legal  process  for  collection  is 
not  of  itself  significant;  the  proportion  of  cases  of  actual 
default  or  inability  to  pay  is  the  true  index.  This  is  very 
low.  Branchart  cites,  for  example,  the  case  of  the  Nord- 
ostliche  Baugewerks-Berufsgenossenschaft  where  trade  con- 
ditions were  extremely  unfavorable.  For  55.5  per  cent 
of  all  assessments  suit  had  to  be  begun  to  compel  payment, 
but  only  in  1 .98  per  cent  of  all  cases  was  there  inability  to 
pay.  According  to  Branchart,  the  cause  of  delay  is  to  be 
found  chiefly  in  the  "indifference,  forgetfulness,  especially 
in  the  negligence  {Nachlassigkeit)  of  the  members."1 
Stringency  in  the  money  market,  which  affected  adversely 
the  majority  of  the  smaller  companies,  and  the  desire  on 
the  part  of  the  larger  establishment  to  have  the  use  of  the 
money  led  in  not  a  few  cases  to  an  open  procrastination  of 
payment  till  the  last  possible  moment,  the  costs  of  process 
laid  on  delinquents  being  small.  In  many  cases  of  default 
in  payment  of  assessments  the  inability  to  pay  was  due  to 
the  ordinary  causes  of  business  failure  and  could  not  prop- 
erly be  ascribed  to  the  weight  of  social  insurance. 

Branchart  again  emphasizes  the  point  that  the  advantages 
of  social  insurance  must  be  offset  against  its  cost.  He  is 
of  the  opinion,  in  common  with  most  other  writers  on  the 
subject,  that  no  satisfactory  and  complete  statistical  answer 
to  the  question  is  possible,  and  is  inclined  to  place  the  burden 
of  proof,  involving  the  necessity  of  bringing  statistical  evi- 
dence in  support  of  the  claim  that  industry  is  overburdened, 
upon  the  employers. 

The  question  of  a  possible  loss  of  competitive  power  in 

1  Branchart,  Zur  Frage  der  Belaslung,  476. 


THE    BURDEN    IN    GERMANY  99 

foreign  markets  is  answered  by  an  appeal  to  the  statistics 
of  export  of  the  principal  nations,  showing  that  Germany's 
share  in  the  world  export  trade  rose  from  10.3  per  cent  in 
1885  to  12.5  per  cent  in  191 1,  while  England's  percentage 
share  declined,  France's  declined,  and  that  of  the  United 
States  increased  but  little. 

The  old  argument  is  once  more  reiterated  that  the  tre- 
mendous growth  of  German  industry  is  coincident  with  the 
enactment  of  social  insurance  laws,  and  a  causal  connection 
is  sought  in  the  necessity  imposed  by  the  new  burdens  of 
hastening  improvements  in  technique,  greater  use  of  capital, 
and  more  profitable  use  of  labor. 

Finally,  figures  are  produced  to  throw  light  on  the  question 
of  decline  in  dividends.  The  conclusion  is  drawn  that  social 
insurance  burdens  have  had  no  traceable  influence,  and 
that  net  profits  have  been  and  continue  to  be  reasonable. 

From  this  review  of  the  evidence,  the  conclusion  would 
seem  to  be  justified  that  social  insurance  has  not  proved  a 
handicap  upon  German  industry  as  a  whole.  Social  insur- 
ance premiums  are  but  a  small  and  relatively  unimportant 
part  of  the  total  cost  of  production.  There  is  no  proof 
that  dividends  have  been  generally  impaired.  Facts  as 
to  depressions  in  certain  specific  establishments  or  industries 
may  generally  be  explained  in  terms  of  other  causes  than 
social  insurance.  The  observed  effects  of  levying  a  tax 
(several  times  heavier  than  the  weight  of  social  insurance) 
in  the  beer  industry  suggests  that  the  possibilities  of  shifting 
burdens  of  this  sort  are,  for  some  industries  at  least,  very 
elastic.  German  industry  as  a  whole  has  been  flourishing 
and  an  increasing  share  of  export  trade  has  been  taken  by 
Germany.  In  the  face  of  these  broad  facts,  no  other  con- 
clusion can  be  drawn  but  that  social  insurance  has  not  been 
a  serious  burden  upon  industry. 


I 


CHAPTER   VI 
SHIFTING  PROCI  I  HY 

What  would  be  the  effect  on  Ameri<  an  industry  of  im- 
posing UpOIl  it  a  burden  similar  to  that  of  the  social  in- 
Burance  of  Germany?  The  question  is  one  of  the  most 
complicated  of  economic  problems.  Opponents  of  s 
insurance  often  argue  that  it  would  injure  industry,  that 
it  would  hamper  competition  for  foreign  trade,  that  no 
state  could  possibly  impose  such  a  burden  without  forcing 
its  capita]  and  its  enterprise  to  seek  other  fields  more  profit- 
able. 

In  what  sense  i.-^  it  permissible  to  speak  of  a  "burden" 
upon  industry?  The  arguments  of  those  employers  who 
oppose  the  introduction  of  social  insurance  usually  go  no 
further  than  to  point  out  the  sums  that  they  will  ha. 
pay  in  the  Brst  instance.  But  if  the  amount  is  received 
back  in  increased  price,  or  is  made  up  by  savings  in  other 
costs,  it  i-  clearly  allowable  to  speak  of  a  "burden"  only 
as  it  is  measured  by  the  difficulties  and  pains  of  the  shifting 
process.  If  wages  arc  reduced  by  the  amount  of  the 
employers'  insurance  contributions,  it  is  clear  that  the 
employers  suffer  nothing.  Only  if  enterprisers  are  forced 
out  of  business  by  a  reduction  or  elimination  of  profits, 
if  enterprisers  emigrate   to   more   favorable   localities,   if 

there  is  a   falling  off  of  investment   within   tin-  state,   is  it 

proper  to  Bpeak  of  industry  a-  "burdened." 

It  will  be  necessary  therefore  to  answer  three  main 
questions:  (i)  What  proportion  of  the  cost  can  be  met 
by  shifting  the  burden  to  the  consumer  in  higher  prices, 
or  by  savings  in  the  cost  of  the  productive  process?  (2)  To 
what  extent  will  an  emigration  of  capital  and  enterprise 
take  place?     Will  there  be  an  increased  amount  of  business 

100 


THE    SHIFTING    PROCESS    IN    INDUSTRY  IOI 

failures  by  reason  of  insurance  burdens,  or  an  avoidance 
of  the  state  by  new  investors?  And  finally,  (3)  will  v. 
be  reduced?  Logically  this  last  question  is  subsidiary 
to  the  first;  but  it  is  impossible  to  say  how  much  wages  will 
be  reduced  without  first  knowing  whether  industry  will 
fall  off  in  a  state  establishing  an  insurance  system.  Fur- 
thermore, the  question  of  the  effect  on  wages  has  of  course 
a  special  importance  of  its  own. 

What  proportion  of  the  cost  will  be  shifted?  Social 
insurance  adds  a  new  cost  to  production,  practically  un- 
compensated by  any  increase  in  product.  Either  prices 
must  rise  or  other  costs  or  residual  elements  must  shrink. 
Classical  economic  theory  teaches  that  an  item  of  cost 
which  is  uniform  for  all  producers  tends  to  appear  in  price. 
For  producers  in  any  one  line  the  cost  of  insurance,  per 
unit  of  product,  will  be  approximately  uniform.  The 
theory,  however,  states  rather  the  results  after  the  shifting 
process  has  been  completed  than  the  way  in  which  the 
shift  takes  place.  A  new  cost  could  appear  in  price  just  as 
well  in  connection  with  a  decrease  of  wages  as  by  an 
increase  of  price. 

Whether  the  producers  will  be  able  to  raise  the  price 
to  the  consumer  depends  on  the  state  of  competition  in  the 
trade  and  on  the  nature  of  the  demand  for  the  commodity. 
If  the  demand  for  the  product  is  elastic,  so  that  the  quan- 
tity demanded  shrinks  rapidly  with  .111  increase  of  price, 
a  shift  of  the  burden  to  the  consumer  will  In-  impossible, 
and  the  producer  will  have  to  find  some  other  method  of 
meeting  the  added  cost.  An  increase  in  price  will  he 
comparatively  easy  in  case  of  a  commodity  for  which  the 
demand  is  inelastic. 

If  an  industry  issubjeel  to  foreign  competition,  especially 

if  the  latter  is  free  from  such  burdens,  or  i>  in  a  stronger 
economic  position,  an  increase  "I  price  will  he  difficult. 
If  the  industry  is  secure  against  foreign  competition,  prices 


102  SOCIAL    INMkAM  I 

may  be  increased  and  the  burden  passed  along  more  easily. 
n  it"  severe  competition  characterizes  the  home  market, 
an  increase  in  price  may  follow  if  all  suffer  equally  under 
the  same  burden.  In  any  case  it  depends  essentially  on 
the  ability  <>f  producers  to  act  in  concert  against  the  con- 
sumer; in  case  this  concerted  action  is  possible,  not  even 
the  existence  of  foreign  manufacturers  in  the  same  line 
will  prevent  an  increase  of  prices.  To  impose  a  similar 
burden  on  all  producers  means  in  most  cases  to  increase  price. 

If  the  position  of  the  home  industry  is  weak  eco- 
nomically, the  producer  may  be  unable  to  shift  the  burden 
to  the  consumer.  Compulsory  contribution  to  social  in- 
surance may  give  large  establishments  an  additional 
advantage  over  the  smaller  ones;  and  it  may  rest  with  the 
former  whether  they  will  raise  the  price  to  meet  the  added 
cost,  or  will  prefer  to  expand  their  business,  reducing  the 
costs  and  forcing  out  the  more  inefficient  producers. 

Of  practical  importance  is  the  degree  of  ease  with  which 
the  price  can  be  moved.  Wholesale  prices  are  much  more 
easily  shifted  than  retail;  a  small  shift  in  wholesale  quo- 
tations may  sometimes  not  appear  in  the  final  price  at  all, 
being  absorbed  by  the  middleman.  In  other  cases,  how- 
ever, it  may  give  rise  to  a  jump  in  the  price  of  the  final 
product  out  of  all  proportion  to  the  insurance  costs. 

Having  failed  to  shift  the  burden  to  the  consumer  or  to 
pass  it  along  to  the  wholesaler,  the  producer  seeks  to  reduce 
his  costs.  It  is  a  question  of  the  easiest  way  out.  The 
average  employer  does  not  have  control  over  the  market 
price  of  his  commodity;  but  his  costs  depend  to  some 
extend  upon  his  progressiveness,  his  enterprise,  and  similar 
factors.  The  addition  of  the  new  item  of  cost  to  the 
regular  costs  of  production  may,  by  threatening  the  residual 
income  of  the  enterpriser,  spur  him  to  make  new  efforts  to 
reduce  costs  of  production.  If  the  outermost  limit  has  not 
already  been  reached,  he  may  be  able  to  reduce  the  manu- 
facturing   cost    by    introducing    new    machinery    or    new 


THE    SHIFTING    PROCESS    IN    INDUSTRY  103 

processes,  by  adopting  more  efficient  methods  of  shop 
practice,  or  by  eliminating  waste.  Scientific  management 
has  opened  a  new  view  of  possible  achievement  in  the 
direction  of  reduction  of  costs. 

New  improvements  are  made,  to  be  sure,  all  the  time; 
and  it  may  be  argued  that  they  might  have  been  made  or 
introduced  even  though  social  insurance  had  not  been 
adopted.  It  nevertheless  remains  true  that  the  extra 
cost  of  the  latter  is  made  up  by  the  savings  in  cost  of  the 
former.  In  such  a  case,  prices  to  the  consumer  will  remain 
stationary  instead  of  falling,  or  the  profit  to  the  enterpriser 
will  remain  what  it  has  been  instead  of  rising.  Such  a 
method  of  meeting  the  cost  cannot  be  said  to  impose  a  serious 
burden  upon  industry.1 

A  more  serious  objection  to  the  theory  that  a  part  of  the 
cost  can  be  made  up  by  improvements  in  productive  methods 
is  that  under  conditions  of  competition  there  is  noth- 
ing to  prevent  the  foreign  competitor  from  adopting  the 
same  improvements  and  maintaining  his  advantage  over 
the  domestic  manufacturer.  Under  such  conditions  he 
might  either  pocket  the  saving  derived  from  such  improve- 
ments, or  if  he  saw  fit,  he  might  force  a  reduction  in  price 
to  the  consumer  corresponding  to  the  saving  in  cost  of 
production.  But  the  foreign  producer  has  no  such  im- 
mediate pressure  placed  upon  him  to  make  the  improve- 
ments as  has  the  domestic  manufacturer;  he  will  probably 
prefer  to  wait  till  the  invention  or  the  method  has  proved 
its  worth,  or  till  there  is  some  immediate  and  compelling 
motive  to  rouse  him  out  of  inertia.  It  often  happens 
that  the  sole  advantage  of  an  industry  located  in  one 
section  over  that  in  another  section  consist  in  the  superior- 
ity of  process,  better  machinery,  and  more  complete  utiliz  1- 
tion  of  raw  material  and  of  the  time  of  employee^.  Reduced 
to  its  simplest  terms,  this  is  nothing  more  nor  less  than 

1  Increases  in  wages  are  often  followed  by  the  introduction  of  labor, 
saving  machinery,  compensating  the  increased  cost  of  wages  by  lessened 
cost  of  production. 


104  SOCIAL    INSURANCE 

that  the  one  section  keeps  ahead  of  the  other  in  discovering 
anil  in  introducing  new  improvements. 

To  impose  the  burden  on  the  section  that  is  in  the  had 
may  reduce  somewhat  the  amount  of  its  advantage,  depend- 
ing on  the  amount  of  the  insurance  payments  required. 
In  its  ultimate  effect  the  advantage  may  not  be  reduced  at 
all.  To  impose  the  burden  on  the  more  backward  section 
may  not  have  that  calamitous  result  that  seems  so  obvious; 
but  it  may  act  as  a  spur  to  the  quicker  adoption  of  newer 
and  more  up-to-date  methods.  Massachusetts  adopted  i 
ten-hour  day  for  the  cotton-spinning  trade  before  any  other 
of  the  New  England  States.  An  inquiry  into  the  effect 
on  the  amount  of  the  product  showed  that  per  man  and  per 
loom  quite  as  much  was  produced  in  Massachusetts  as  in 
the  other  states  with  eleven-hour  or  twelve-hour  days.1 
The  cotton  mills  of  New  England  hold  their  own  against 
the  mills  of  the  South  in  spite  of  the  much  more  rigid  laws 
relating  to  child  labor,  hours  of  labor,  factory  inspection, 
employers'  liability,  etc.  The  imposition  of  social  insurance 
burdens  in  Germany  has  gone  hand  in  hand  with  a  wonderful 
development  of  German  industry,  which  has  been  made 
possible  by  the  modernization  of  her  manufacturing 
methods. 

Failing  to  effect  a  saving  in  this  way,  the  producer  may 
be  forced  to  shave  some  of  those  items  that  grow  with 
prosperity  and  shrink  with  adversity.  Among  these  may 
be  counted  the  return  ascribed  to  plant  as  rent.  If  the 
factory  cannot  easily  be  applied  to  a  more  productive 
purpose,  the  owner  may  have  to  consent  to  a  reduction  of 
the  returns  rather  than  have  it  standing  idle.  If  all  other 
enterprises  are  laboring  under  similar  pressure  this  shift 
will  be  easier  to  carry  through.  The  enterpriser's 
of  management  may  be  reduced;  the  only  escape  is  for  the 
enterpriser  to  seek  some  other  more  profitable  application  of 

1  Massachusetts,  Uniform  Hours  of  Labor,  in  Twelfth  Annual  Report 
of  the  Bureau  of  Statistics  of  Labor,  Part  III.  457  (January,  1881). 


THE    SHIFTING    PROCESS    IN    INDUSTRY  105 

his  talents — an  outlet  which  will  depend  on  his  ability  and 
the  opportunities  available  and  which  is  rarely  as  easy  as 
classical  economics  assumed.  In  some  cases  the  producer 
may  be  able  to  reduce  prices  of  raw  materials,  passing  the 
burden  backward,  in  case  he  is  the  only  consumer,  or,  if  all 
other  consumers  are  in  a  similar  plight,  they  may  have  a 
price-making  position  with  reference  to  the  goods  or 
services  in  question.  But  here  the  elasticity  of  the  items  of 
cost  of  the  raw  material  comes  into  the  question  as  well 
as  the  elasticity  and  urgency  of  the  demand  for  it. 

Finally,  the  producer  may  be  able  to  reduce  wages. 
Wages  of  persons  more  or  less  dependent  upon  him  for 
employment  may  be  reduced  without  much  difficulty.  These 
have  the  choice  of  accepting  the  reduction  or  leaving  the 
employment  and  looking  elsewhere  for  a  job  which  they 
cannot  find.  Inefficient  men  and  persons  well  along  in 
years  would  probably  suffer  because  their  economic  position 
is  weak.  The  attitude  of  trade  unions  and  their  strength 
would  have  a  considerable  influence  upon  the  reduction  of 
costs  in  wages.  In  the  case  of  an  unskilled  laborer  who 
can  everywhere  find  an  opportunity  to  use  his  powers  the 
producer  would  probably  be  unable  to  effect  much  of  a 
reduction.  The  laborer  is  bound  to  no  employer  and  his 
work  will  command  about  the  same  price  anywhere.  The 
mobility  of  labor  is  of  importance  in  this  connection. 
Many  workmen  might  be  willing  to  accept  a  reduction  of 
pay — especially  if  temporary — rather  than  go  to  the 
trouble  of  seeking  a  new  position  and  moving  to  a  new 
town.  If  the  insurance  system  is  general,  however,  it  is 
evident  that  the  question  is  complicated  by  the  possibility 
of  employers  everywhere  acting  in  tacit  agreemenl  in 
their  wage  policy. 

In  a  period  of  prosperity  and  rising  prices,  the  producer 
will  probably  be  able  to  shift  the  cost  more  easily  to  the 
consumer.  In  case  of  need  he  will  be  able  to  carry  it  more 
easily  himself  out  of  his  larger  profits.     Wages,  which  tend 


106  SOCIAL     INM  RAM   I 

to  lag  behind  prices  in  an  upward  movement,  may  not  be 
advanced  so  rapidly.     In  a  crisis,  however,  the  chance  of 

shit  tint;  would  be  much  smaller,  and  the  producer  might 
have  to  pockel  the  extra  burden  himself.  Under  excep- 
tional circumstances  he  may  do  this  anyway. 

The  burden  will  fall  most  heavily  on  the  economically 
weak.  Large-scale  producers  have  a  much  more  favorable 
position  that  the  small  producers  or  the  hand  trades. 
This  is  illustrated  by  the  action  of  large  companies  in 
voluntarily  establishing  pension  systems  for  their  own 
employees.  Farmers  would  find  it  most  difficult  to  shift 
burdens  imposed  on  them.1  This  is  on  account  of  their  lack 
of  organization. 

It  is  impossible  to  predict  how  the  cost  will  be  met  in  any 
concrete  case.  It  depends  on  all  the  conditions,  of  market, 
of  manufacture;  it  depends  upon  the  possibilities  which 
exist  in  each  industry  and  in  each  factory  of  making  up 
for  the  added  cost  by  a  change  in  prices  and  a  decrease 
in  the  expense.  There  can  be  no  general  answer  to  the 
question  whether  the  insurance  payments  will  be  a  burden  to 
industry.  It  may  be  a  burden  in  some  lines  under  some 
conditions,  or  to  inefficient  or  marginal  producers. 

The  proportion  of  the  cost  that  can  be  shifted  varies 
with  the  conditions  of  the  industry.  Where  there  is  con- 
siderable "slack"  in  wholesale  and  retail  prices,  in  the 
prices  of  raw  material  and  in  other  costs,  a  small  item  of 
from  one  to  two  per  cent  of  the  wholesale  price  can  be 
absorbed  without  difficulty  and  without  affecting  the 
well-being  or  threatening  the  existence  of  the  industry. 
Where  the  industry  labors  under  difficulties,  the  addition 
of  even  a  small  amount  is  a  more  serious  matter.  It  would 
be  especially  so  if  imposed  for  the  first  time  in  hard  times. 
For  the  great  majority  of  industries  the  burden  would 
probably  be  so  slight  that  it  would  be  a  matter  of  little 
difficulty  either  to  make  it  up  in  another  way  or  to  shift  it. 

1  Farmers  are  included  in  the  scope  of  the  German  accident  in- 
surance. 


CHAPTER   VII 

EFFECT  OF  INSURANCE  UPON  CAPITAL  AND  ENTERPRISE 

Under  the  present  system  of  industrial  organization  the 
enterpriser  or  the  employer  is  directly  responsible  for  the 
conduct  of  industry.  Capital  is  invested  under  his  direc- 
tion, and  he  seeks  and  utilizes  the  opportunities  for  profit 
that  appear  most  remunerative.  Insurance  places  a  burden 
upon  the  employer  or  enterpriser  which  he  attempts  to 
shift;  but  if  he  is  unable  to  force  others  to  accept  the  bur- 
den, he  is  compelled  to  bear  it  himself  as  the  residual 
claimant. 

The  effect  of  social  insurance  upon  capital  and  enter- 
prise becomes  a  matter  of  especial  importance  when  insur- 
ance is  adopted  in  a  single  state.  The  possibilities  of 
emigration  must  be  taken  into  account.  Capital  can  be 
invested  in  a  neighboring  state  and  enterprisers  will  move 
there,  if  the  prospective  return  appears  to  be  greater.  If 
the  burden  of  social  insurance  bears  with  any  considerable 
weight  upon  enterprise  or  capital,  industry  within  the 
state  will  suffer.  To  what  extent  would  an  emigration  of 
capital  or  failure  of  enterprisers  take  place  as  a  result  of 
a  system  of  insurance? 

In  considering  the  effect  on  capital  it  will  be  necessary 
to  distinguish  between  the  effect  on  capital  already  in- 
vested and  capital  seeking  new  investment.  Capital  al- 
ready invested  is  relatively  immobile.  The  value  of  i  ho 
plant  does  not  depend  upon  the  initial  investment  cost,  but 
on  the  actual  and  prospective  returns.  The  effect  on  capi- 
tal already  invested  will  appear  only  in  so  far  as  the  returns 
on  the  property  and  the  enterpri>e  are  curtailed,  and  will 
tend  to  show  itself  in  a  revaluation  of  the  plant  to  corres- 

■   '7 


I08  SOCIAL    INSURANCE 

pond  with  the  capitalization  of  the  return  at  the  current 
rate  of  interest. 

Can  such  capital  emigrate  to  avoid  this  contingency? 
To  the  owner  of  an  establishment  or  factory-  there  arc  two 
alternatives:  to  sell  his  plant,  or  to  let  it  run  down  and 
abandon  it.  Adopting  the  first  alternative,  he  secures  only 
its  market  price,  which  will  necessarily  depend  on  the  value 
ascribed  to  it  by  another  enterpriser  on  the  basis  of  its  earn- 
ing capacity  under  the  new  conditions.  The  second  alter- 
native is  to  hold  back  the  replacement  fund  and  reinvesl 
it  elsewhere.  The  amount  of  this  replacement  fund  would 
have  to  come  in  the  remaining  years  of  the  life  of  the  plant 
from  the  income  received;  in  case  of  the  lessening  of  this 
income,  it  would  appear  that  the  amount  of  the  fund  and  the 
practicability  of  withdrawing  it  would  be  affected  adversely. 

The  tendency  to  revaluation  would  be  different  for  dif- 
ferent grades  of  fixed  capital.  Where  the  present  value  of 
fixed  capital  is  considerably  higher  than  its  original  cost, 
where  there  is  a  large  element  of  "good-will"  or  "franchise 
value,"  revaluation  will  take  place  on  the  basis  of  the  new 
income.  The  value  of  a  railroad  is  in  large  measure  inde- 
pendent of  the  cost  of  mere  maintenance,  and  a  shrinkage 
in  income  would  mean  nothing  more  nor  less  than  a  fall  in 
value  of  stock.  The  value  of  patents  and  of  the  exclusive 
ownership  of  natural  monopolies  might  be  affected  by  the 
loss  of  income.  Capital  invested  in  a  growing  industry  in 
which  normally  a  certain  number  of  factories  are  replaced 
every  year  to  keep  up  to  the  demand  will  be  valued  at  or 
near  the  cost  of  replacement;  and  here  a  readjustment  will 
have  to  take  some  other  form  than  a  simple  lessening 
either  of  the  replacement  fund  or  of  the  value  of  the  plant.1 

1  It  may  be  pointed  out  here  at  the  risk  of  repetition  that  it  does  not 
necessarily  follow  that  there  will  be  any  serious  reduction  in  return  to 
be  taken  into  account  by  the  enterpriser  or  the  owner  of  fixed  capital. 
The  additions  to  cost  may  be  made  up  in  improvements  in  technique, 
by  savings  in  raw  materials,  and  other  economies.  Only  to  the  extent 
that  no  other  outlet  is  available  does  an  effect  on  capital  have  to  be 
considered. 


EFFECT    UPON   CAPITAL   AND    ENTERPRISE  IO9 

Capital  which  is  invested  in  relatively  fluid  forms  is  in 
no  such  difficult  position.  A  business  not  requiring  any 
specialized  factory  and  not  using  a  large  amount  of  fixed 
capital  may  very  easily  be  transported  across  the  borders 
to  a  state  where  conditions  are  easier.  Such  capital  would 
respond  much  more  quickly  to  pressure  and  is  not  so  de- 
pendent for  its  value  on  the  precarious  future  income  of  the 
business. 

The  crucial  question  is  whether  the  returns  on  new  capital 
invested  within  the  state  would  be  lessened.  Would  the 
opportunities  for  new  investments  be  restricted?  Enter- 
prisers and  capitalists  seeking  fields  for  investment  have 
the  option  of  going  to  the  state  where  a  system  of  insurance 
is  in  operation  or  of  investing  in  a  neighboring  state.  The 
decision  will  depend  on  the  relative  advantages  of  one  state 
over  the  other  for  the  particular  kind  of  business  they 
are  seeking  to  engage  in;  and  the  relative  weight  which 
must  be  given  to  payments  for  insurance  as  compared  with 
the  other  advantages  and  disadvantages. 

Among  the  inducements  which  appeal  to  the  prospective 
enterpriser  in  determining  the  location  of  his  place  of  busi- 
ness or  factory  are:  the  state  laws  relating  to  corporations, 
local  and  state  taxation,  the  presence  of  a  skilled  body  of 
laborers,  the  efficiency  and  cost  of  labor,  nearness  to  market 
and  to  raw  materials,  and  railroad  facilities.  There  would 
also  have  to  be  reckoned  the  "burden"  of  workmen's  insur- 
ance or  of  old-age  pensions.  In  many  industries  one  or  the 
other  of  the  enumerated  conditions  is  of  determining  im- 
portance. In  these  the  burden  of  workmen's  insurance 
would  cut  no  figure  at  all.  In  some  lines,  obvious  advant- 
ages are  offset  or  nearly  offset  by  disadvantages,  and  the 
additional  burden  of  insurance  would  be  considered.  The 
establishment  of  cotton  mills  in  the  South  brings  the  advant- 
age of  nearness  to  cotton  and  coal  and  iron,  but  the  serious 
disadvantage  of  lack  of  reliable  skilled  labor;  the  • 
lishment  of  workmen's  insurance  in  Massachusetts  would 


no  son  \i    insi  RAl 

mean  amply  an  additional  small  item  to  be  considered  by 

the  enterpriser  in  deciding  where  he  shall  locate  his  plant. 

As  has  already  been  shown,  the  actual  burden  of  insur- 
ance is  very  slight.  It  forms  a  very  small  percentage  of 
the  wages,  and  an  almost  insignificant  amount  when  com- 
pared to  t  be  price  of  the  product.  The  conclusion  would 
therefore  be  entirely  justified  that  the  burden  <>f  workmen's 
insurance  is  relatively  of  slight  importance  and  would  affect 
little,  if  at  all,  the  opportunities  for  new  enterprisers  or  the 
field  for  new  investments. 

The  situation  of  Germany  with  reference  to  emigration 
of  capital  is  much  more  favorable  for  the  maintenance  of 
the  demand  for  labor  than  would  be  the  case  after  the  in- 
troduction of  compulsory  insurance  in  an  American  state. 
All  of  Germany  is  uniformly  under  the  system  of  insurance. 
To  escape  the  burden  capital  must  seek  foreign  investment; 
and  in  a  country  where  the  feeling  of  nationality  is  so  much 
developed  there  is  a  much  greater  desire  on  the  part  of 
capitalists  to  invest  in  Germany  and  develop  home  industry 
than  to  invest  in  France,  England,  or  Russia,  or  even  in 
South  American  countries  or  in  the  United  States.  Tariffs 
and  patent  laws,  as  suggested  by  Professor  Herkncr,  are 
probably  of  much  greater  weight.  The  case  of  one  or  two 
American  companies  establishing  plants  in  Germain-  would 
tend  to  confirm  the  impression  that  the  social  burdens  are 
not  of  the  first  importance  in  deciding  the  movements  of 
capital. 

There  remain  to  be  discussed  the  influence  in  stimulating 
industry  of  the  new  demand  arising  from  the  stream  of 
income  diverted  to  the  pensioned  elasx-s  and  the  effect  of 
insurance  on  the  accumulation  of  capital.  The  direction 
of  demand  arising  in  tin-  Btate  is  changed  to  an  extent  de- 
pending on  the  proportion  of  the  sums  paid  in  pensions 
which  is  drawn  from  other  sources  than  the  income  of  the 


EFFECT   UPON   CAPITAL   AND    I  \ TERPRISE  III 

workers.  Industry  must  naturally  adjust  itself  to  the 
change  in  demand. 

In  a  closed  economy  the  total  value  of  goods  demanded 
would  not  be  changed.  More  would  be  demanded  of  goods 
produced  for  the  working  classes,  less  of  goods  consumed 
by  other  classes.  If  proportionately  more  labor  is 
required  for  or  goes  into  making  goods  purchased  by  the 
working  classes,  such  a  change  might  be  accompanied  by 
some  increase  in  the  demand  for  labor. 

Industry  in  a  single  state  adopting  social  insurance  would 
not  be  affected  appreciably  by  such  shifting  of  demand. 
Any  lessening  of  demand  of  certain  classes  would  affect 
merely  the  general  market  demand  for  goods  produced 
exclusively  for  those  classes,  any  increase  of  demand  on 
the  part  of  pensioned  workingmen  would  likewise  affect 
only  the  general  market  prices.  Local  effects  would  occur 
only  in  so  far  as  the  shift  in  demand  affected  products  i In- 
local  supply  of  which  ruled  the  market,  and  would  be  fa- 
vorable or  adverse  as  the  demand  shifted  to  or  away  from 
goods  produced  by  industries  of  the  state.  The  conditions 
of  industry  within  the  state  would  still  be  determined 
largely  by  the  influences  affecting  the  emigration  of  capital 
and  the  success  of  enterprisers  within  the  state  borders. 

The  effect  of  insurance  on  the  accumulation  of  capita! 
may  be  treated  briefly.  There  is  no  reason  to  suppose 
that  the  rate  of  interest  would  be  lowered.1  In  Germany 
large  insurance  accumulations  have  been  made,  in  invalid- 
ity insurance  especially,  and  these  can  be  considered  as 
additions  to  the  capital  of  the  country. 

The  effect  of  such  accumulations  on  industry  depends  on 
how  they  are  invested.  If  there  were  no  condition  requir- 
ing such  capital   to   be   invested   within   the  Mate,   it    could 

have  little  effect  on  the  situation  there.     It  would  mean 

only  an  increase  of  capital  in  the  general  market,  and  the 

investment  of  this  within  the  state-  would  be  encouraged  or 

1  The  effect  of  insurance  on  thrift  will  In-  diacuased  in  a  later  chapter. 


112  SOCIAL    INSURANCE 

discouraged  by  the  conditions  for  new  investment  there  as 
compared  with  conditions  elsewhere.  Even  a  requirement 
that  it  be  invested  in  local  securities  or  local  enterprises 
would  be  of  little  effect,  for  if  it  were  invested  in  securities 
or  ventures  which  would  otherwise  have  attracted  other 
capital,  it  would  simply  free  the  latter.  This  capital  would 
then  seek  further  for  the  most  satisfactory  and  remunera- 
tive investment.  If  invested,  however,  in  fields  not  at- 
tracting other  capital  by  the  prospective  rate  of  return, 
such  as  in  social  welfare  work,  workmen's  tenements,  em- 
ployment bureaus,  etc.,  etc., — objects  having  a  justifica- 
tion other  than  that  of  securing  a  regular  return  on  the 
cost, — there  might  be  a  slight  effect  in  encouraging  local 
industry  and  furnishing  a  new  demand  for  labor  within  the 
state. 


i 


CHAPTER  VIII 

EFFECT   OF   INSURANCE   UPON   WAGES 

The  subject  of  the  effect  of  an  insurance  system  upon 
wages  deserves  a  special  treatment,  because  of  the  widely 
prevalent  belief  that  its  effect  must  be  to  reduce  wages  by 
the  amount  of  the  benefits. 

There  are  two  views  held.  One  is  that  commonly  held 
by  persons  who  are  anxious  to  fix  by  law  the  share  of  sick- 
ness or  of  old-age  insurance  premiums  which  the  workmen 
shall  contribute, — that  the  payments  made  by  employers 
have  no  effect  on  wages.  This  is,  further,  the  position 
taken  by  most  advocates  of  a  state  pension  for  aged  per- 
sons. L.  W.  Squier  argues  that  workers  are  not  now  re- 
ceiving a  "living  wage"  and  cannot  be  expected  to  contrib- 
ute to  pensions.1  Professor  Hitze,  writing  upon  the  Ger- 
man insurance  system,  declares  emphatically,  "  It  is  a  meas- 
ure for  the  safeguarding  of  the  wage.  .  .  .  It  is  rec- 
ognized that  the  wage  must  cover  not  only  the  needs  of  the 
worker  during  his  period  of  activity,  but  also  must  provide 
for  a  replacement  of  the  capital  necessary  for  the  education 
and  care  of  youth,  the  expenditure  for  a  day  of  sickness, 
old  age,  risks  of  life  and  health  as  far  as  they  are  connected 
with  the  work.  .  .  .  Insurance  is  the  only  method  of 
ensuring  this  minimum  wage;  the  insurance  contributions 
form  a  part  of  the  wage."2 

On  the  other  hand,  a  suspicion  is  quite  prevalent  among 
the  business  public  and  among  economists  that  it  is  not  so 
easy  to  raise  wages  as  is  thus  assumed.     It  is  held  that 

1  Squier,  Old  Age  Dependency,  50,  328. 

2  Hitze,  Zur  Wtirdigung  der  deutschen  Arbeiter-Soziiil  politik .  Kritik 
der  Bernhardschcn  Schrijt:  Unerwiinschtc  Folgen  der  deutschen  Sozial- 
politik,  98. 

9  "3 


114  SOCIAL    INSURANCE 

wages  are  fixed  by  economic  forces,  which  cannot  be  altered 
by  mere  resolutions  of  a  body  of  legislators.  The  Massa- 
chusetts Commission  on  ( )1<1  Age  Pensions  held  very  strongly 
to  this  opinion.1  The  prohibition,  in  the  German  law,  of 
shifting  premiums  to  the  workers  may  be  referred  to  in  pass- 
ing. The  low  wages  paid  in  government  positions  where  a 
pension  is  held  out  as  a  reward  after  the  completion  of  a 
certain  period  of  service  are  often  cited  as  evidence  of  an 
adverse  effect  upon  wages.2  Professor  Taussig  believes  that 
"the  outcome  is  likely  to  be  that  the  insurance  charges  will 
ultimately  come  out  of  the  workmen's  own  earnings."3 
There  seems  therefore  to  be  ample  reason  for  examining  the 
proposition  involved  and  subjecting  it  to  a  critical  analysis. 

Changes  in  wages  may  be  due  to  changes  in  the  supply 
of  or  to  changes  in  the  demand  for  labor.  These  may  be 
conditioned  or  caused  by  a  change  in  the  psychological 
attitude  of  the  laborer.  The  wage  cannot  usually  be  re- 
duced beyond  what  the  average  workman  thinks  is  fair  or 
"decent,  "  or  he  will  prefer  to  lay  down  his  tools  rather  than 
work.  On  the  other  hand,  wages  may  be  increased  or  de- 
creased as  a  result  of  an  increase  or  a  decrease  in  the  de- 
mand for  labor. 

The  supply  of  labor  in  different  occupations  could  be 
affected  as  a  result  of  introducing  accident  compensation 
only  in  two  ways:  First,  by  a  movement  of  the  supply 
from  the  less  to  the  more  dangerous  trades,  because  of  the 
greater  value  of  the  chance  of  securing  accident  compensa- 
tion. This  might  take  place  within  the  state.  Second,  by 
an  increase  of  immigration  from  the  industries  of  a  state 
which  did  not  offer  compensation  to  its  workers,  to  secure 
the  advantages  of  compensation  for  accident  without  loss 
of  wages. 

1  Report  of  the  Commission,  250-254  (1910). 

2  Cf .  Brown,  Savings  and  Annuity  Plan  Proposed  for  Retirement  of 
Superannuated  Civil-Service  Employees.  61st  Cong.,  3d  Sess.,  Senate 
Doc.  No.  745,  58-60. 

3  Taussig,  Principles  of  Economics,  II.  327. 


EFFECT   UPON   WAGES  115 

There  would  be  no  general  shifting  from  the  less  to  the 
more  dangerous  trades.  Workmen  do  not  stop  to  calculate 
before  engaging  in  a  dangerous  trade  how  much  their  acci- 
dent insurance  will  cost  them;  in  most  cases  they  do  not 
appreciate  the  amount  of  danger.  Those  who  do  would 
still  estimate  the  chance  of  loss  of  life  or  the  chance  of  injury 
and  find  therein  an  excellent  motive  for  avoiding  the  trade. 
Enjoyment  of  accident  pensions  is  not  something  to  which 
workmen  normally  look  forward  with  pleasure,  either  on 
their  own  account  or  on  the  part  of  their  survivors. 

Migration  from  a  state  without  accident  compensation 
is  likewise  little  to  be  feared.  Those  who  fear  this  assume 
that  workmen  do  estimate  danger  and  seek  to  allow  for  it, 
which  is  scarcely  borne  out  by  the  facts.  They  assume  far 
too  great  a  mobility  of  labor  and  too  much  knowledge  of 
all  the  conditions  to  accord  with  reality.  Skilled  workmen 
would  be  more  likely  to  consider  such  differences  in  laws 
than  unskilled.  But  the  migration  of  a  workman  with  his 
family  from  one  state  to  another  to  secure  more  adequate 
compensation  in  the  event  of  an  accident  killing  or  injuring 
him,  involves  a  keenness  of  imagination  and  of  suscepti- 
bility to  possible  danger  that  would  be  apt  to  deter  him 
from  undertaking  the  dangerous  railroad  journey!  In  so 
far  as  the  actual  daily  or  weekly  wage  is  not  increased, 
there  would  be  no  appreciable  effect  on  the  supply  of  labor. 

The  relative  supply  of  labor  in  the  principal  occupations 
would  not  be  affected  by  a  general  provision  for  old  age. 
To  the  extent  that  the  system  was  common  to  all  branches 
there  would  be  no  temptation  to  change  from  one  line  of 
work  to  another.  The  argument  from  the  effect  of  govern- 
ment pensions  on  the  rates  of  wages  in  those  occupations 
does  not  apply  if  the  pension  system  is  general.  Govern- 
ment pensions  in  Great  Britain  and  elsewhere  have  been 
coupled  with  low  wages  for  such  positions,1  but  this  can  be 

1  Brown,  Civil  Service  Retirement,  Great  Britain  and  New  Zealand, 
14-15.  61st  Cong.,  2nd  Sess.,  Senate  Doc,  No.  290.  A  very  interesting 
account  of  wage  psychology. 


Il6  SOCIAL   INSURANCE 

explained  partly  as  the  effect  of  the  general  conditions  of 
employment,  including  small  chance  of  dismissal  and  agree- 
able work,  and  partly  by  the  greater  attractive  power  of 
prospective  pensions  and  a  consequent  willingness  of  work- 
er>  to  accept  less  in  government  employ  than  elsewhere. 
An  interference  with  the  mobility  of  labor  may  be  a  result 
of  a  partial  system  of  pensions.  Professor  Seager  explains 
the  influence  of  the  special  provision  for  professors  at  Colum- 
bia University.1  A  man  who  had  taught  there  for  a  num- 
ber of  years  would  be  willing  to  stay  even  though  he  might 
receive  an  increase  of  salary  by  accepting  another  position. 
He  would  be  influenced  in  his  decision  by  the  value  of  his 
claim  for  pension.  No  such  tendency  or  influence  would 
appear  if  the  pension  system  were  general.  But  a  general 
system  of  pensions  for  members  of  the  working  class  would 
likewise  not  involve  any  tendency  to  reduce  wages  because 
of  a  greater  influx  of  labor  into  the  occupations  concerned. 

The  only  influence  considered  as  tending  toward  a  gen- 
eral decrease  of  wages  on  the  side  of  the  supply  of  labor  is 
possible  immigration.  A  state  or  nation  with  a  system  of 
old-age  pensions,  it  is  urged,  will  attract  workers  into  it 
from  neighboring  states  to  enjoy  the  promised  benefits. 
Obviously,  the  amount  of  attractive  force  will  depend  on 
the  system  introduced.  A  compulsory  contributory  sys- 
tem where  the  worker  pays  the  entire  cost  will  have  no 
positive  effect  (and  might  even  have  a  negative  effect), 
while  the  maximum  allurement  would  be  held  out  by  the 
straight  pension.  The  yearly  value  of  a  future  pension,  say 
of  Sioo,  would  not  represent  a  very  great  increase  of  wages; 
and  differences  of  wages  much  in  excess  of  that  exist  and 
persist  in  the  same  trades  in  localities  not  far  distant  from 
each  other,  even  in  the  same  state.  Differences  in  wages 
arising  from  other  causes  than  insurance  would  therefore 
continue  to  exert  by  far  the  more  important  influence  on 
migration.     Differences  in  school  facilities  and  in  conditions 

1  Seager,  Social  Insurance,  A  Program  of  Social  Reform,  122-123. 


EFFECT   UPON   WAGES  I  I  J 

of  living  would  probably  be  of  more  importance  than  old- 
age  pensions.  For  a  laborer  who  is  already  settled  in  one 
locality,  emigration  with  a  family  to  a  place  where  condi- 
tions are  not  very  well  known  is  a  venturesome  undertaking. 
The  floating  body  of  workmen  are  not  nearly  so  much  con- 
cerned with  the  problem  of  old  age.  as  with  the  immediate 
satisfaction  of  their  daily  needs.  For  the  working  class  as 
a  whole  the  offer  of  a  state  old-age  pension  would  be  a  very 
small  incentive  to  a  change  of  residence. 

Any  movement  of  workmen  already  nearing  the  age 
when  a  pension  would  be  granted  could  be  prevented  by  a 
residence  requirement.  This  difficulty,  moreover,  would 
be  found  only  in  the  case  of  a  straight  old-age  pension,  and 
would  not  have  to  be  taken  into  account  in  any  compulsory 
insurance  scheme  in  which  the  amount  of  pension  received 
depended  on  the  amount  of  the  contributions  made. 

Aside  from  immigration  there  would  be  no  increase  of  the 
number  of  laborers.  An  adverse  effect  upon  wages  must 
then  result  either  in  a  psychological  willingness  to  accept 
less  on  account  of  the  insurance  provisions,  in  a  lessening 
of  the  demand  for  labor,  or  in  the  unwillingness  on  the  part 
of  the  employers  to  pay  as  much  as  before.  There  is  also 
the  question  as  to  whether  the  price  of  products  will  rise 
to  such  an  extent  as  to  affect  the  cost  of  living  of  the  class 
to  be  pensioned.  This  question  may  be  easily  dismissed 
so  far  as  a  total  offsetting  of  the  advantages  of  pensions  for 
the  class  under  consideration  is  concerned,  for  though  the 
prices  of  many  articles  may  rise,  the  advance  will  certainly 
not  fall  entirely  or  even  principally  upon  the  working  class. 

The  psychological  aspect  of  the  risk  of  accident  on  wages 
has  already  1  >een  discussed.  The  conclusions  and  the  impli- 
cations of  that  discussion  may  be  briefly  stated.  There  is 
no  sound  basis  for  the  theory  that  extra  pay  is  demanded 
by  workmen  for  extra  risk,  except  where  workmen  insure 
themselves  either  individually  or  collectively  against  acci- 
dent.    There  will  be  a  willingness  to  accept  smaller  pay  on 


Il8  SOCIAL    INSURANCE 

account  of  adequate  workmen's  compensation  only  where 
accident  insurance  is  already  provided  and  only  if  such 
compensation  means  that  the  insurance  will  be  discarded 
as  no  longer  necessary.  In  the  case  of  the  great  body  of 
laborers  this  consideration  will  be  of  small  practical  im- 
portance. The  average  workman  does  not  now  realize  the 
need  of  accident  insurance  and  makes  no  provision  for  it. 
The  more  certain  and  more  adequate  payment  of  compen- 
sation does  not  render  him  more  ready  to  accept  lower 
wages;  he  regards  it  simply  as  fairer  and  more  equitable 
than  the  older  system  of  employers'  liability,  as  something 
which  ought  to  have  been  introduced  before.  Even  in  case 
of  workmen  who  insure  themselves,  more  adequate  com- 
pensation may  not  mean  that  they  will  consent  to  a  wage 
decrease.  It  may  bring  with  it  a  better  realization  of  the 
occupational  risk,  and  may  not  even  lead  them  to  abandon 
their  own  insurance.  The  agitation  for  adequate  compen- 
sation for  injuries  received  from  accidents  brings  home  the 
idea  of  the  value  of  human  life  and,  consequently,  work- 
men may  still  insist  on  receiving  extra  pay  for  their  personal 
hazard. 

With  reference  to  old-age  pensions,  the  Massachusetts 
Commission  bases  its  conclusions  that  a  fall  in  wages  or 
an  unfavorable  effect  on  wages  will  occur  even  in  case  of 
a  non-contributory  state  pension  partly  on  the  psychological 
factor.  The  Commission  argues  that  wages  will  fall  (i) 
because  of  the  direct  competition  of  pensioned  aged  work- 
ers, (2)  because  of  "reflex  competition,"  i.e.  the  rate  of 
wages  "demanded"  or  "required"  by  adult  workers  would 
be  lessened  by  a  process  of  advance  discounting  of  the  pen- 
sions to  be  received.1 

The  first  of  these  arguments  looks  at  first  sight  to  be 
based  on  the  action  of  supply  and  demand.  But  the  aged 
\\<>rkcr>  were  present  and  competing  for  employment  before 
as  well  as  after  the  grant  of  pensions.     Your  pensioned 

lReport  of  the  Commission,  252-3. 


EFFECT   UPON    WAGES  1 1 9 

aged  worker  may  think  to  himself:  "  I  have  been  getting  a 
dollar  and  a  quarter  a  day  for  what  little  work  I  am  still 
able  to  perform;  now  the  state  pays  me  a  dollar  a  day,  I 
do  not  'require'  and  will  not  ask  for  more  than  25  cents  for  my 
day's  labor."  A  much  more  probable  result  in  the  case  of 
a  man  who  was  entirely  satisfied  with  $1.25  a  day  would  be 
that  he  would  work  but  one  or  two  days  in  five.  The  grant 
of  a  pension  gives  to  the  aged  worker  a  strategic  advan- 
tage in  that  he  can  lower  his  bid  without  feeling  the  con- 
sequences of  it.  In  bad  times,  with  an  overstocked  labor 
market,  he  may  lower  his  bid  in  order  to  get  a  job.  In 
normal  times  the  aged  worker  will  merely  be  in  a  better 
position  to  insist  on  getting  what  he  is  worth. 

A  very  probable  result  would  be  a  fall  in  wages  for  part 
of  the  aged  workers.  It  often  happens  now  that  employers 
do  not  turn  off  an  employee  who  has  worked  with  the  firm 
for  a  long  period  of  time.  They  pardon  inefficiency  and 
slowness  because  of  the  memory  of  his  faithful  sendee.  If 
such  persons  were  to  receive  pensions,  there  would  be  no 
such  humanitarian  scruples,  and  the  wage  of  the  aged  work- 
man would  fall  to  the  level  of  what  his  services  were  worth. 
This  tendency  would  appear  only  where  employers  had 
been  moved  by  such  motives;  and  in  general,  this  would 
apply  to  cases  of  comparatively  skilled  workers,  in  the 
smaller  businesses,  in  employments  where  the  personal 
contact  of  employer  and  employee  is  direct  and  sympa- 
thetic. Unskilled  labor  and  agricultural  labor  would  be 
little  affected. 

The  second  argument  is  an  imputation  of  the  same  kind 
of  psychology  to  all  adult  workers.  He  is  assumed  to  dis- 
count the  pension  to  be  received — or  the  probability  that 
he  will  live  long  enough  and  be  poor  enough  to  be  eligible 
to  receive  gratuitous  aid  from  the  state — and  to  be  con- 
tent with  wages  that  are  lower  by  an  annual  sum  which, 
accumulated  with  interest,  will  equal  at  the  age  of  seventy 
the  value  of  the  pension.     This   is  a   fairly   complicated 


120  SOCIAL    INSURANCE 

problem.  If  the  pension  system  has  any  such  effect  upon 
the  wage  rate  it  is  certain  that  the  amount  of  reduction 
which  the  worker  will  accept  will  be  determined  by  a  simple 
process  of  guesswork.  The  difficulty  with  the  whole  proc- 
ess, however,  is  that  most  workers  are  not  sufficiently 
aware  of  the  need  of  providing  for  old  age  to  make  any 
special  effort  in  that  direction.  It  must  be  conceded,  how- 
ever, that  the  promise  of  a  definite  pension  would  probably 
loom  much  larger  in  the  mind  of  the  workman,  than  the 
fear  of  poverty  or  distress  on  reaching  old  age. 

It  is  interesting  to  compare  this  argument  with  a  similar 
one  rather  common  in  Germany.  The  workers,  it  is  claimed, 
really  force  the  employers  not  only  to  pay  their  own  pre- 
miums or  to  shift  them  to  the  consumer,  but  also  to  raise 
wages  by  the  amount  of  the  premiums  which  the  workmen 
are  required  to  pay.  Wages  in  Germany  have  increased 
very  rapidly  in  the  last  few  years,  and  part  of  this  increase 
is  ascribed  to  the  working  of  this  psychological  pressure. 

Both  arguments  start  from  the  same  premise:  that  the 
standard  of  living  is  a  determining  factor  in  regulating 
wages.  The  Massachusetts  Commission  believed  that  a 
state  provision  for  old  age  would  permit  a  reduction  in 
expenses  of  the  average  workman  by  relieving  him  of  the 
need  of  providing  for  his  old  age.  The  German  view  sees 
only  the  lessened  income  of  the  worker's  family  for  present 
pressing  needs  due  to  the  subtraction  of  the  workman's 
share  of  invalidity  and  sickness  premiums.  An  obvious 
difficulty  of  the  first  of  these  two  views  is  that  the  workman 
is  merely  relieved  of  a  need  the  pressure  of  which  the  aver- 
age workman  does  not  feel.  Furthermore,  this  view  en- 
tirely loses  sight  of  the  fact  that  the  standard  of  living  is 
itself  elastic.  Nothing  is  more  probable  than  that  the 
workingman,  instead  of  accepting  a  reduction  of  wages 
because  of  these  increased  benefits  to  be  enjoyed  in  the 
future,  would  regard  them  as  a  definite  addition  to  his 
standard. 


EFFECT   UPON  WAGES  121 

In  case  an  attempt  was  made  to  reduce  wages  at  the 
time  of  the  introduction  of  a  compulsory  insurance  system 
of  old-age  pensions,  the  probable  result  would  be  deter- 
mined resistance  on  the  part  of  labor.  There  would  be 
no  "psychological  discount  of  future  benefits"  which  would 
permit  a  reduction  in  the  prevailing  standards  of  "fair" 
wages.  An  illustration  of  the  probable  working  of  this 
psychological  factor  may  be  found  in  the  strike  at  Lawrence, 
Massachusetts.  The  employers  decided  to  reduce  the 
wages  of  the  men  to  correspond  with  the  reduction  of  the 
legal  weekly  maximum  of  labor  time  from  56  to  54  hours. 
Instead  of  seeing  that  a  reduction  in  their  working  time 
and  in  their  productivity  should  naturally  be  accompanied 
by  a  decrease  in  pay,  the  men  revolted  against  the  proposal 
of  the  employers,  with  the  final  result  of  securing  a  con- 
siderable increase  of  wages.  To  be  sure,  matters  were 
hopelessly  bungled  by  the  employers,  who  did  not  announce 
the  reduction  or  attempt  to  prepare  the  employees  for  it  at 
all,  but  allowed  them  to  learn  of  it  only  by  finding  a  short- 
age in  their  pay  envelopes.  The  men  naturally  thought 
that  they  had  been  cheated,  and  were  thoroughly  aroused 
and  united  in  their  resistance. 

Another  illustration  is  found  in  the  introduction  of  the 
compulsory  old-age-insurance  system  in  France.  At- 
tempts to  deduct  premiums  from  the  wages,  according  to 
the  provisions  of  the  law,  were  everywhere  met  with  re- 
sistance by  the  mutualists  and  syndicalists,  and  it  was 
found  that  there  was  no  way  to  enforce  the  payments.  The 
legal  situation  respecting  the  right  and  duty  of  employers 
to  subtract  such  premiums  was  hopelessly  obscured  by  the 
uncertainty  of  administrative  action  and  the  absence  of 
court  decisions.1 

After  the  system  had  been  in  force  for  some  time,  it  would 
be  impossible  to  distinguish  between  the  effects  of  deduction 

JCf.  Zeilschrifl  fur  die  gesamtc  Versicherungs-Wissenschajt,  XII.  Rund- 
schau, columns  449-50;   676,  1303-04  (1912). 


122  SOCIAL    INSURANCE 

of  premiums  and  of  other  causes  of  low  wages,  and  it  might 
be  sought  to  defer  an  increase  in  wages  because  of  the  bur- 
dens of  insurance.  It  is  improbable  that  laborers  would 
be  willing  to  defer  increases  or  make  less  strenuous  efforts 
to  secure  higher  wages  on  account  of  any  psychological 
attitude  toward  the  benefits  of  insurance.  The  psycholog- 
ic, il  attitude  would  rather  be  that  of  including  the  insur- 
ant- benefits  in  their  minimum  standard.  The  same  efforts 
would  be  made  to  secure  better  terms  of  bargaining,  and 
the  success  of  these  demands  would  not  be  influenced  by 
any  lack  of  cooperation  due  to  a  psychological  reluctance 
on  the  part  of  striking  workmen  to  insist  on  "too  much." 
The  concept  of  "too  much"  or  "more  than  is  reasonable 
to  demand"  would  probably  not  take  into  account  pay- 
ments made  for  insurance  against  accidents  or  old  age,  but 
would  rather  be  based  on  the  cost  of  living  and  the  various 
items  of  expense.  It  does  not  seem  likely  that  there  would 
be  a  psychological  influence  in  the  direction  of  a  decrease 
in  wages. 

A  distinction  may  be  made  between  the  positions  of  the 
skilled  and  the  unskilled  worker.  A  skilled  workman 
would  be  more  likely  to  feel  that  the  employer  was  justi- 
fied in  reducing  wages  a  little  on  account  of  the  extra  bur- 
dens of  insurance.  He  makes  provision  for  himself  more 
frequently  than  the  unskilled  worker.  His  range  of  em- 
ployment  is  more  limited  in  direct  relation  to  the  degree 
of  specialized  skill  which  he  exercises,  and  consequently 
he  has  not  a  wide  field  of  choice  of  employments.  On  the 
other  hand,  skilled  men  are  more  strongly  organized  in 
trade  unions,  and  have  relatively  more  power  in  case  of 
a  strike.  Even  here,  the  psychological  attitude  of  the  work- 
men is  of  very  great  importance  in  maintaining  the  spirit 
of  a  strike  and  in  securing  what  they  consider  to  be  reason- 
able demands. 

Unskilled  workers,  though  comparatively  less  well  or- 
ganized, enjoy  a  wider  range  of  possible  employers.     For 


EFFECT    UPON    WAGES  1 23 

workers  not  in  unions,  the  psychological  estimate  of  what 
is  a  fair  or  "living"  wage  is  about  the  only  basis  of 
a  minimum  wage  rate.  It  is  much  more  difficult  for 
unskilled  laborers  to  act  together,  but  when  aroused  by  an 
"unfair"  reduction  of  wages  cooperation  is  secured.  Un- 
skilled workmen  would  probably  refuse  to  consider  a  future 
old-age  pension  as  any  justification  of  a  reduction  of  wages, 
and  in  periods  of  increasing  cost  of  living  would  not  be 
influenced  by  the  arguments  of  employers  to  consent  to 
a  postponement  of  increases  of  wages.  The  wider  market 
for  unskilled  labor  would  make  reduction  more  difficult. 

Influences  affecting  adversely  the  demand  for  labor  in 
the  event  of  the  introduction  of  a  system  of  insurance  would 
be  the  emigration  of  capital  to  other  states  or  the  failure  of 
enterprisers.  The  chief  arguments  that  wages  will  be  re- 
duced are  based  on  the  presumed  effect  on  business  enter- 
prises. 

The  introduction  of  accident  compensation  involves 
weighting  different  branches  of  industry  in  proportion  to 
their  industrial  risks.  Accident  compensation  is  levied  as 
a  percentage  of  the  wages  paid  and  varies  with  the  degree 
of  hazard.  Will  there  be  a  lessening  of  the  demand  for 
labor  in  the  more  hazardous  industries  such  as  to  produce 
a  reduction  of  wages  in  them  proportionate  to  the  extra 
weight  of  their  accident  costs?  It  will  be  convenient  to 
treat  the  question  of  this  purely  differentia]  effect  of  the 
burden  of  accident  insurance  before  coming  to  the  question 
of  a  general  lowering  of  the  wage  level  due  to  the  cost  of 
social  insurance  in  general. 

To  argue  that  wages  will  be  reduced  in  proportion  to  the 
weight  of  the  burden  imposed  is  to  assume  that  wages  are 
now  paid  in  some  measure  according  to  the  risk.  For  if 
wages  are  not  adjusted  to  the  ii>k,  but  are  ordinary  com- 
petitive  rates  for  labor  of  the  desired  degree  of  skill,  an 
attempt  to   lower  wages   be-low    the   competitive   rates   will 


124  SOCIAL   INSURANCE 

be  difficult.  If  no  differentia]  wages  are  now  paid,  it  is 
hard  to  see  how  any  differential  effect  on  the  remuneration 
of  labor  will  take  place  as  a  result  of  the  imposition  of  acci- 
dent burdens.  Only  where  men  are  now  paid  higher  in 
dangerous  trades  than  in  the  safer  ones  can  a  reduction  in 
wages  be  effected  without  forcing  labor  into  other  employ- 
ments; and  then  only  if  labor  is  content  to  remain  in  the 
dangerous  trade  on  this  basis.  Differential  reduction  of 
wages  can  take  place  only  to  the  extent  that  labor  is  willing 
to  accept  less  on  account  of  workmen's  compensation.  Dif- 
ferential wages  depend  essentially  on  the  movement  and 
on  the  demands  of  labor.  The  imposition  of  an  extra  bur- 
den in  some  trades  will  not  reduce  wages  in  those  trades  in 
proportion,  but  will  appear  rather  in  an  effect  on  the  general 
wage  rate.  The  hazardous  industries  will  accommodate 
themselves  to  the  general  price  of  labor. 

Many  of  the  most  hazardous  industries  are  purely  local. 
Construction  work,  the  building  trades,  tunneling  and  under- 
ground construction,  railroading,  are  all  strictly  localized. 
A  building  needed  in  New  York  city  cannot  be  erected 
except  under  the  laws  of  the  state  of  New  York.  The 
higher  cost  of  construction  cannot  be  evaded;  buildings 
will  have  to  be  erected  under  the  new  conditions,  and  there 
will  be  little  or  no  decrease  in  the  demand  for  labor  neces- 
sary- for  their  construction. 

The  effect  of  social  insurance  upon  industry  has  already 
been  discussed.  How  much  will  the  effective  demand  for 
labor  be  reduced?  The  effect  on  capital  and  enterprise 
representing  demand  for  labor  varies  with  the  nature  and 
position  of  the  industry.  An  industry  which  is  in  no  dan- 
ger from  competition  either  because  of  monopoly  privileges 
or  because  of  great  advantage  of  situation,  of  efficiency  of 
labor,  or  of  general  efficiency,  etc.,  will  not  be  seriously 
threatened  by  the  cost  of  insurance.  Industries  producing 
for  a  local  market  will  be  unaffected  by  competition.  Em- 
ployers in  these  trades  will  be  inclined  to  accede  to  the  de- 


EFFECT   UPON   WAGES  1 25 

mands  of  employees.  Where  employers  control  the  price  of 
the  products,  especially  if  the  demand  is  inelastic,  there  will 
be  no  reduction  in  the  demand  for  labor  or  in  wages.  In 
industries  where  it  is  possible  to  meet  a  new  cost  by  cur- 
tailments in  expenses,  there  will  be  no  change  in  the  demand 
for  labor  unless  the  reduction  in  cost  takes  the  form  of 
the  introduction  of  machinery  or  labor-saving  devices. 
In  this  case  there  might  be  a  decrease  in  the  demand 
for  skilled  labor  or  a  shifting  of  demand  to  unskilled 
labor.  The  immediate  change  would  depend  on  whether 
the  machine  or  process  introduced  required  more  or  less 
specialized  skill.  If  the  saving  in  cost  should  more  than 
offset  the  burden  of  insurance  the  effect  on  the  demand 
for  labor  in  the  long  run  would  depend  on  the  nature  of 
the  industry  and  the  expansibility  of  the  demand  for  its 
products.  If  a  large  part  or  all  of  the  increase  in  cost  due 
to  insurance  can  be  met  by  reductions  in  expenses  secured 
by  means  other  than  the  introduction  of  labor-saving 
devices,  a  decrease  of  wages  is  not  to  be  feared.  Where 
the  industry  has  a  large  amount  of  fixed  and  specialized 
capital  which  must  accept  a  reduction  of  value  as  a  result 
of  the  new  system,  it  will  usually  be- profitable  to  employ 
as  much  labor  as  before.  In  so  far  as  marginal  producers 
or  marginal  industries  are  affected,  or  industries  which  suffer 
from  severe  competition  from  without  the  state,  they  may 
be  forced  to  go  out  of  business  or  move  to  a  neighboring 
state.  In  such  cases  there  will  be  a  reduction  in  the  number 
of  men  employed,  or  workmen  in  these  industries  will  sub- 
mit to  a  reduction  of  wages  as  a  necessary  alternative. 

If  the  industry  cannot  survive  unless  reductions  of 
cost  are  made,  and  if  the  only  possible  reduction  is  in  wages, 
the  workmen  may  be  induced  to  accept  an  actual  reduction 
in  preference  to  seeking  a  new  employment.  Unskilled 
workmen  would  probably  fare  better  in  these  circumstances 
than  the  more  specialized  workmen,  because  of  the  larger 
field  in  which  the  former  can  sell  his  labor.     Reductions  in 


126  SOCIAL   INSURANCE 

employment  may  appear  only  in  unemployment  or  may 
tend  to  affect  the  rate  of  wages,  and  will  be  temporary  or 
permanent  depending  on  whether  or  not  the  attractions  for 
new  enterprise  are  undiminished.  The  principal  change  in 
the  attractiveness  of  the  state  for  new  investors  would  be 
the  burden  of  insurance  premiums.  If  this  were  offset  by 
reduction  of  wages  there  would  be  no  diminution  of  at- 
tractiveness; if  the  advantages  of  the  state  for  industry  in 
certain  lines  were  still  sufficiently  great  to  offset  any  "bur- 
den" of  payments,  there  would  be  no  change  in  the  willing- 
ness of  capital  to  seek  investment  there.  In  so  far  as  new 
investments  are  not  reduced  there  would  be  no  permanent 
lessening  of  the  demand  for  labor. 

New  demand  for  labor  arising  as  a  result  of  the  diversion 
of  the  income  stream  to  the  pensioned  workers  would  have 
no  appreciable  effect  on  the  demand  for  labor  within  a  sin- 
gle state;  and  the  accumulation  of  capital  under  compul- 
sory  insurance  would  have  an  appreciable  effect  on  labor 
within  the  state  only  if  locally  invested  in  ways  not  appeal- 
ing to  the  ordinary  capitalist. 

The  extent  of  the  hypothetical  changes  in  demand  for 
labor  must  depend  in  last  analysis  upon  the  importance 
and  weight  of  the  burden  imposed  on  the  employer  and 
capitalist.  Even  if  the  most  extreme  case  is  considered, — 
where  a  single  state  adopts  suddenly  social  insurance  to  the 
full  extent, — the  burden  which  cannot  be  otherwise  met  is 
so  small  that  it  would  have  a  negligible  effect  when  com- 
pared to  the  other  conditions  determining  the  advantages 
of  the  state  for  industry.  Where  already  a  considerable 
item  of  cost  for  accidents  has  been  imposed  on  employers 
by  employers'  liability  laws,  where  there  is  a  similar 
item  in  neighboring  states,  and  where  the  purpose  of  insur- 
ance legislation  is  merely  that  of  leading  the  way  to  a  more 
complete  provision  covering  all  of  the  contingencies  con- 
sidered, there  is  even  less  ground  for  a  fear  either  that 
industry  will  be  injured  or  that  labor  will  suffer  in  reduced 


EFFECT    UPON   WAGES  127 

wages.  If  a  system  covering  the  entire  country  is  adopted 
at  one  time,  there  will  be  yet  less  to  fear.  Emigration  of 
capital  and  enterprise  cannot  take  place  from  the  nation 
with  the  same  absence  of  friction  as  from  one  state  to  an- 
other; tariff  conditions  and  the  safety  and  control  of  in- 
vestment are  much  more  decisive  factors  than  the  "  burden  " 
of  social  insurance. 


CHAPTER   IX 

EFFECT    OF    INSURANCE    UPON    THRIFT 

What  will  be  the  effect  of  social  insurance  upon  thrift? 
How  will  it  affect  the  private  accumulation  of  means  to 
provide  for  the  contingencies  of  life?  It  is  an  argument 
frequently  made  that  the  grant  of  aid  by  the  State  and  the 
requirement  that  employers  shall  contribute  to  pensions 
for  their  employees  will  lead  to  a  melancholy  state  of  de- 
pendence among  the  latter  and  will  encourage  thriftlessness. 
Workmen  will  feel,  it  is  urged,  that  they  will  be  cared  for  in 
case  of  accident,  sickness,  and  old  age  and  will  make  no 
special  effort  to  help  themselves.  They  will  depend  more 
and  more  on  the  State  and  on  efforts  made  for  them  by 
others;  they  will  grow  less  and  less  independent,  and  this 
will  ultimately  appear  in  and  mean  a  great  increase  in  the 
cost  of  poor  relief.  The  grant  of  old-age  pensions  is  re- 
garded simply  as  poor  relief  in  another  form.  On  the 
principle  that  a  nation  will  have  as  many  poor  as  it  chooses 
to  pay  for,  a  general  opposition  to  all  measures  of  social 
insurance  or  of  pensions  is  based.  These  claims  and  argu- 
ments deserve  to  be  examined.  If  any  disastrous  effect 
on  thrift  or  on  the  ability  or  will  of  the  average  workman  to 
take  care  <>t  himself  is  to  follow  the  adoption  of  social  in- 
surance, this  would  be  reason  enough  in  itself  to  refuse  to 
adopt  it. 

In  the  nature  of  the  case  these  questions  turn  on  the 
distribution  of  cost.  There  is  no  intimation  here  that  the 
accumulation  by  workingmen  of  savings  to  provide  for  old 
age  is  not  desirable;  it  is  granted,  rather,  that  adequate 
provision  is  or  should  be  the  highest  aim  for  society.  Such 
provision  "undermines  the  independence"  or  the  "spirit  of 
thrift"  of  the  workman  only  when  the  funds  come   from 

128 


EFFECT   UPON    THRIFT  I2Q. 

another  source,  where  part  or  all  of  the  cost  is  laid  on  em- 
ployer and  industry,  where  the  State  contributes  generously, 
and  especially  where  the  State  grants  a  straight  pension 
without  levying  any  portion  of  the  cost  on  the  workers 
pensioned. 

This  general  argument  applies  especially  to  social  pro- 
vision for  old  age.  Accumulation  of  savings  to  meet  the 
risks  of  accident  is  often  useless;  the  costs  of  sickness  do  not 
necessarily  require  a  long  period  of  saving.  But  the  ac- 
cumulation of  savings  or  of  property  is  absolutely  neces- 
sary if  the  workman  is  not  to  be  dependent  in  his  old  age. 
The  consideration  of  the  question  in  this  chapter  will  there- 
fore be  confined  chiefly  to  the  effects  on  thrift  of  the  various 
ways  of  providing  for  the  aged  members  of  society.1 

The  great  danger  with  any  measure  of  social  legislation 
that  bears  in  any  way  upon  pauperism  is  that  in  some  un- 
foreseen manner  the  very  provision  that  seeks  to  lessen 
or  alleviate  poverty  and  distress  may  actually  increase  it. 
The  well-known  statute  by  which  rates  of  wages  in  England 
that  were  insufficient  for  supporting  families  of  certain 
sizes  were  supplemented  by  subsidies  from  the  poor  rates 
did  not  alleviate  pauperism,  but,  by  encouraging  factory 
employers  to  give  low  wages,  and  by  an  increase  in  the  size 
of  the  family,  defeated  its  own  ends. 

A  system  of  compensation  for  injuries  will  defeat  its  ends 
to  the  extent  that  it  causes  an  increase  of  accidents.2  Pub- 
lic care  of  the  sick  ought  to  result  in  a  decrease  of  sickness. 
A  sickness  insurance  measure  has  to  provide  methods  of 
controlling  the  claims  for  sickness  pay  and  lor  preventing 
attempts  to  defer  recovery.  Independently  of  the  question 
of  individual  provision  of  sums  for  meeting  the  expenses  of 
sickness,  a  strong  argumenl  can  be  made  in  favor  of  a  public 

'For  the  relation  between  social  insurance  and  poor  relief  expense, 
cf.  Woodbury,  Social  Insurance,  Old  Age  Pensions,  and  Four  Relief,  in 
Quarterly  Journal  of  Economics,  XXX.  15a   171  (1915). 

2  This  subject  will  be  briefly  treated  in  the  following  chapter. 


130  SOCIAL    INSURANT  I 

campaign  against  sickness,  on  the  ground  that  the  benefit 
to  the  public  would  more  than  justify  the  necessary  expen- 
diture. Sickness  insurance,  by  spreading  information  and 
extending  medical  care  to  those  who  could  not  otherwise 
afford  it,  by  providing  methods  of  meeting  the  cost  of  a 
campaign  against  sickness  of  all  kinds,  and  by  equalizing 
the  burden  of  sickness  among  workingmen's  families  might 
itself  be  a  valuable  method  of  attack. 

But  in  case  of  the  economic  problems  of  old  age,  elimina- 
tion of  the  aged  by  the  Osier  method  being  unthinkable, 
it  remains  to  provide  for  their  needs  as  well  as  possible. 
With  the  increase  in  the  average  length  of  life  the  propor- 
tion of  the  population  which  lives  to  advanced  age  is  in- 
creasing. At  advanced  age  the  abilities  and  opportunities 
of  workers  to  earn  money  are  seriously  reduced.  Here  ii  is 
a  question  of  thrift.  Thrift  must  have  been  exercised  In 
the  years  prior  to  reaching  the  age  of  dependence  to  safe- 
guard against  the  poorhouse. 

Whether  or  not  old-age  pensions  are  to  be  looked  upon  as 
poor  relief  in  another  form  is  immaterial  to  the  point  under 
discussion.  It  can  be  argued,  perhaps,  that  the  worker 
who  has  spent  the  best  part  of  his  life  in  developing  the 
resources  of  the  country  is  entitled  to  be  cared  for  in  his 
old  age.  The  cost  may  possibly  be  justified  on  this  ground. 
But  the  question  under  discussion  is  whether  the  effect 
would  be  to  increase  the  dependence  of  aged  workers,  to 
make  the  proportion  of  aged  who  need  pensions  greater,  or, 
in  other  words,  to  lessen  the  thrift  which  each  worker  ex- 
ercises for  himself  during  his  years  of  employment.1 

Is  it  necessary  to  hold  before  the  working  population  the 
prospect  of  an  old  age  of  misery,  want,  and  shame  as  the 
penalty  for  lack  of  thrift?     Will  a  more  generous  treatment 

1  The  control  of  the  age  of  pension  claimants  is  simple  where  there 
has  been  for  a  long  period  complete  registration  of  births.     Otherwise 
there  is  danger  of  fraud  or  misrepresentation  in  statement  of  age.     Cf 
note  on  Ireland,  supra,  22. 


EFFECT    UPON    THRIFT  I3I 

of  the  aged  mean  a  lessening  of  the  motives  of  accumulation 
of  savings  among  the  working  classes? 

Thrift  may  be  defined  as  a  habit  of  mind  which  seeks  to 
reduce  expenditures  for  present  purposes  to  a  minimum. 
It  seeks  to  widen  the  margin  between  the  standard  of 
expenditure  and  the  income  received,  and  there  is  usually 
but  not  necessarily  some  definite  object  toward  which  the 
savings  or  accumulations  are  to  be  devoted.  The  exercise 
of  thrift  depends  on  the  strength  of  the  motives  leading  to 
the  exercise  of  it  compared  with  the  intensity  of  the  wants 
needing  present  satisfaction.  The  intensity  of  present 
wants  depends  further  on  the  requirements  of  the  standard 
of  living  and  the  possibilities  afforded  by  the  amount  of 
income.  Accumulation  of  savings  does  not  mean  that  the 
sums  saved  will  be  applied  to  the  purpose  for  which  they 
were  originally  intended.  For  other  wants  may  continually 
arise  and  demand  satisfaction;  it  depends  on  the  degree  of 
persistence  and  resolution  on  the  part  of  the  saver,  whether 
the  exercise  of  the  original  self-denial  will  ultimately  result 
in  his  reaching  the  goal  towards  which  he  started.  The 
exercise  of  economy,  to  be  effective,  must  be  carried  out 
with  continuity  of  purpose;  thrift  must  become  a  habit. 

A  wide  margin  between  the  standard  of  living  and  the 
income  received  makes  the  exercise  of  thrift  easy.  Immi- 
grants who  have  brought  with  them  the  standard  of  living 
enforced  on  them  by  the  more  severe  conditions  of  the  old 
country  find  it  easy  to  accumulate  savings.  Large  sums 
of  money  are  sent  home  annually  by  Italian,  Hungarian, 
and  Greek  immigrants.  The  Chinese  have  no  difficulty 
in  accumulating  large  amounts  from  their  wages,  because 
their  standard  of  expenditure  is  low.  In  some  savings 
banks  in  our  eastern  cities  it  is  thrifty  foreigners  who  hold 
a  majority  of  the  deposit  accounts.  The  standard  of  living 
of  the  American  workman  is  more  closely  adjusted  to  the 
wages  received,  and  he  finds  it  more  difficult  to  make  any 
accumulations  from  his  earnings.     These  differences  grad- 


132  SOCIAL    INSURANCE 

ually  disappear  as  the  Btandard  among  our  immigrants  and 
their  descendants  grows  t<>  meet  their  earnings. 

A  powerful  motive  or  a  ready  means  of  profitable  invest- 
ment encourages  thrift.  The  willingness  to  exercise  self- 
denial  is,  for  example,  probably  much  strengthened  when 
a  father  is  trying  to  send  a  son  through  high  school  or  col- 
lege. Saving  among  Armenian  immigrants  is  probably 
encouraged  by  their  desire  to  become  independent.  Men 
who  started  as  bootblacks  or  shoe-repairers  now  have  well- 
kept  shops  filled  with  machinery  and  do  a  thriving  business. 
Greek  immigrants  acquire  and  develop  confectionery  stores. 
Undoubtedly  such  openings  for  business  investment  give 
an  impetus  to  the  accumulation  of  the  necessary  capital. 

The  fundamental  conditions  of  thrift  are  essentially 
different  in  the  working  classes  and  in  the  middle  classes. 
The  possession  of  the  economic  virtue  of  thrift,  of  the 
psychological  characteristics  of  ability  to  see  and  to  develop 
an  opportunity  for  investment  and  to  invest  wisely,  together 
with  the  continuity  of  purpose  that  is  requisite  in  accumu- 
lating a  sum  for  a  specific  end,  will  probably  place  a  man 
in  the  middle  class.  Men  beginning  as  workers  will  be 
able  under  free  conditions  of  enterprise,  especially  in  a 
young  country,  to  rise  to  independence.  Those  left  in  the 
working  class  as  permanently  dependent  will  very  likely 
be  those  who  lack  these  qualities. 

The  exercise  of  thrift  does  not  necessarily  lead  to  the 
accumulations  of  saving  or  to  wise  investment.  Italians 
from  the  various  sections  of  Italy  living  in  Worcester,  Mass., 
spend  large  sums  of  money  every  year  in  pyrotechnic  dis- 
plays  in  honor  of  the  patron  saints  of  their  districts,  each 
section  in  a  spirit  of  emulation  desiring  to  outdo  the  others 
in  the  brilliancy  of  the  display.  There  is  surely  the  collec- 
tive  exercise  of  thrift,  but  it  is  applied  to  a  useless  purpose. 
An  individual  workman  may  succeed  in  getting  a  little  ahead 
of  the  game  by  accumulating  a  small  sum.  Then  a  clever 
book  agent  persuades  him  to  part  with  the  hard-earned 


EFFECT   UPON   THRIFT  1 33 

savings.  Such  as  these  have  neither  the  fixity  of  purpose 
nor  the  capacity  of  judicially  weighing  the  importance  of 
different  possible  expenditures  necessary  to  make  the 
exercise  of  thrift  avail  for  a  purpose  set  far  ahead  in  the 
distant    future. 

There  are  many  who  fall  below  the  level  of  those  who  are 
inclined  or  able  to  exercise  thrift.  Some  are  positively 
improvident.  Their  income  is  spent  before  they  have  re- 
ceived it.  They  may  have  borrowed  money  of  loan  asso- 
ciations and  may  never  have  succeeded  in  getting  the  debt 
paid  off.  Where  improvidence  is  coupled  with  the  drink 
habit  or  with  aversion  to  labor,  these  persons  sink  easily 
into  the  pauper  class. 

The  conditions  of  thrift  vary  with  the  period  of  life  of  the 
workingman.  Before  marriage  earnings  exceed  expenses  by 
a  safe  margin.  After  marriage  comparative  prosperity 
continues  until  the  arrival  of  the  second  or  third  child.  The 
pressure  of  present  wants  is  especially  heavy  during  the 
years  of  married  life  when  the  family  is  still  wholly  de- 
pendent on  the  earnings  of  the  father.  Conditions  become 
easier  from  the  time  when  the  first  child  begins  to  earn; 
when  the  last  of  the  children  is  earning  money  conditions 
are  easiest.  This  period  of  comparative  ease  is  followed  by 
difficulties  that  begin  with  the  decline  of  the  earnings  due 
to  the  infirmities  of  old  age.1  The  exercise  of  thrift  for  the 
purpose  of  providing  for  old  age  will  be  most  difficult  during 
the  period  of  greatest  pressure  of  wants. 

Providing  for  old  age  or  for  any  need  of  the  distant  future 
is  rendered  difficult  by  the  variability  of  income.  So  long 
as  income  is  regularly  earned,  some  savings  may  perhaps  be 
made.  With  periods  of  unemployment,  sickness,  or  in- 
jury, the  difficulties  of  continuing  accumulation  are  insur- 
mountable; the  family  must  live  <>n  the  savings  already 
made.  For  these  reasons  the  absence  <>l  savings  does  not 
necessarily    imply    improvidence.     Only    with    provision 

1  Cf.  Rowntrec,  Poverty,  A  Study  of  Town  Life,  136-7. 


134  SOCIAL   INSURANCE 

made  for  accident,  sickness,  etc.,  does  effective  accumula- 
tion for  old  age  become  possible.1 

What  will  be  the  effect  on  thrift  of  the  different  methods 
of  providing  for  old  age  by  social  legislation?  Thrift  will 
be  affected  by  either  weakening  of  the  motives  to  saving 
or  lessening  of  the  ability  to  save.  The  only  motive  to  save 
that  would  be  affected  by  social  provision  for  old  age  is  the 
desire  to  make  independent  provision  for  old  age.  The 
reduction  of  this  desire  can  obviously  have  weight  only 
to  the  extent  that  the  desire  itself  is  effective,  only,  that  is, 
to  the  extent  that  provision  for  the  years  of  dependence  is 
actually  made  by  the  working  class  by  thrift  at  the  present 
time.  Social  legislation,  on  the  other  hand,  would  diminish 
the  practical  possibility  of  exercising  thrift  only  to  the  extent 
that  it  reduced  wages. 

There  are  three  principal  ways  in  which  governments 
have  tried  to  solve  the  problem  of  destitution  in  old  age. 
They  have  sought  to  encourage  and  stimulate  thrift.  France 
and  Belgium  have  established  old-age-pension  institutions, 
which  offer  definite  pensions  in  return  for  a  given  amount  of 
deposits.  These  institutions  afford  a  safe  place  of  deposit 
and  encourage  saving  for  the  definite  purpose  of  providing 
for  old  age.  Deposits  once  made  cannot  be  withdrawn  and 
used  for  other  purposes.  More  immediate  demands  cannot 
make  inroads  upon  the  funds  accumulated  for  the  last  years 
of  life.  Workmen  have  been  encouraged  to  deposit  in  the 
institutions  by  the  grant  of  subsidies. 

1  Cf.  the  statistics  of  the  Massachusetts  commission  on  the  aged 
poor  population  of  the  state.  The  percentage  of  those  who  had  prop- 
erty above  debts  at  any  time  was  37.9.  The  percentage  of  property 
holders  who  sustained  losses  was  for  all  classes  56.1;  of  almshouse  in- 
mates, 97.4.  "Among  the  causes  of  property  loss,  extra  expenses  on 
account  of  sickness  and  emergencies  show  an  average  percentage  of 
60.1;  business  failures  and  bad  investments  come  second,  with  25.4; 
intemperance  and  extravagance  stand  third,  with  6.2;  while  fraud  and 
fire  claim  5.1  and  3.2  respectively."     Report  of  the  Commission,  57. 


EFFECT   UPON    THRIFT  135 

An  adverse  effect  on  thrift  in  general  can  scarcely  be 
attributed  to  a  measure  which  encourages  or  places  a  pre- 
mium on  the  exercise  of  thrift.  There  is  no  reason  to  think 
that  the  offer  of  such  subsidies  would  cause  a  growth  of 
dependence  or  thriftlessness  among  the  working  population. 
The  receipt  of  a  subsidy  is  always  conditioned  on  the 
deposit  of  a  certain  minimum  amount.  The  exercise  of 
thrift  by  the  workingman  himself  is  prerequisite  to  his 
receiving  a  subsidy.  The  effect  of  the  grant  of  a  subsidy 
is  no  different  in  its  psychological  appeal  from  an  increase 
of  the  interest  rate.  But  the  chief  value  of  the  grant  of 
government  aid,  possibly,  is  of  an  advertising  nature:  it 
brings  home  to  the  workingman  the  need  of  making  some 
provision  for  his  later  years. 

Far  from  discouraging  thrift,  these  measures  have  met 
with  a  certain  success  in  encouraging  and  stimulating  it. 
The  Belgian  government  has  given  liberal  subsidies  to 
depositors  in  the  old-age  institution  since  1900.  Sub- 
sidies were  granted  equal  to  three  fifths  of  the  yearly  de- 
posits under  15  francs,  with  a  maximum  of  9  francs  per 
account  per  year;  for  those  over  forty,  the  maximum  aid 
was  set  at  14.40  francs.  In  1903  the  yearly  allowance  of  the 
state  was  increased  for  the  higher  age  classes.  At  the  same 
time  agitation  was  carried  on  in  the  schools  to  encourage 
children  to  deposit  their  savings.  The  total  number  of 
depositors  in  the  Belgian  institution  rose  from  169,000  in 
1899  to  over  a  million  in  1910.1 

Some  of  the  savings  thus  deposited  in  the  old-age  insti- 
tutions represent  merely  transferences  from  other  places 
of  deposit.  In  the  early  years  of  the  French  institution  the 
rate  of  interest  was  usually  above  the  market  rate,  and 
the  deposits  were  made  chiefly  by  the  middle  classes.2     A 

1  Rubinow,  Social  Insurance,  342. 

2  Workmen's  Insurance  and  Compensation  Systems  in  Europe,  in 
Twenty-fourth  Annual  Report  of  the  Commissioner  of  Labor,  I.  834-35 
(1908).  The  law  of  1886  permitted  an  annual  adjustment  of  the  rate  of 
interest  paid  by  the  institution  to  the  market  rate. 


I36  SOCIAL    INSURANCE 

requirement  in  the  Belgian  pension  law  of  1900  that  persons 
who  were  from  55  to  58  years  of  age  on  January  1,  1901, 
must  prove  that  they  had  deposited  a  certain  minimum  sum 
in  the  old-age  institution  in  order  to  qualify  for  the  state 
pension  granted  on  reaching  65,  caused  a  large  increase  in 
the  deposits  of  this  age  group.  Part  of  the  savings  so  de- 
posited may  have  been  transferred  from  other  places,  as 
the  easiest  method  of  satisfying  the  law.2  For  the  rest,  the 
increase  in  the  number  of  depositors  and  the  amount  of 
deposits  can  be  taken  as  evidence  of  more  adequate  realiza- 
tion of  the  necessity  of  saving. 

The  second  method  of  social  provision  for  old  age  is 
that  of  compulsory  insurance.  What  effect  does  this  have 
on  the  thrift  of  the  working  classes?  To  the  extent  that  the 
workingmen  themselves  contribute,  it  not  merely  encour- 
ages but  it  compels  thrift,  and  secures  the  effective  saving 
and  accumulation  of  sums  for  a  definite  end.  It  reinforces 
the  desire  to  save  by  making  saving  compulsory.  And  the 
effect  on  the  will  to  save  would  further  be  rather  to  stimulate 
than  to  retard  it.  The  weekly  reiteration  of  the  deductions 
for  future  contingencies  keeps  before  the  minds  of  the 
workers  the  idea  of  saving  for  a  definite  purpose,  and  the 
desire  to  supplement  the  amounts  to  be  received  may  easily 
encourage  further  accumulation.  Those  who  would  save 
anyway  would  not  be  induced  to  lessen  their  savings;  while 
a  large  number  would  be  compelled  to  save,  who  otherwise 
would  never  have  thought  of  saving  or  would  not  have 
given  serious  thought  to  it. 

The  excess  of  the  workingman's  income  over  his  expendi- 
ture may  be  reduced  by  the  amount  of  the  deductions  from 
wages  or  by  the  amount  of  whatever  decreases  in  wages 
may  result  from  the  imposition  of  the  burden  upon  the 
employers.  The  loss  in  present  wages  can  be  no  greater 
than  if  the  entire  sum  were  levied  on  the  worker  in  the  first 

2  Twenty-fourth  Annual  Report  of  the  Commissioner  of  Labor,  I.  511, 
521- 


EFFECT   UPON   THRIFT  1 37 

instance.  But  the  sums  deducted  from  the  wages  are 
definitely  saved.  On  the  average,  more  is  saved  in  that  way 
than  under  ordinary  conditions.  The  margin  of  surplus 
for  further  saving  may  be  somewhat  reduced,  but  the 
desire  to  save  further  is  stimulated  rather  than  satiated  by 
compulsory  insurance.  Industrial  insurance  for  working- 
men  has  increased  very  greatly  in  Germany  since  the  enact- 
ment of  workmen's  insurance.1  The  educative  value  of 
social  compulsory  saving  can  scarcely  be  overestimated. 

The  Swedish  compulsory  insurance  act  requires  all  sums 
to  be  paid  by  the  insured  person.  The  German  act  places 
part  of  the  cost  on  the  employer.  It  is  difficult  to  see  how 
the  fact  that  a  large  part  of  the  cost  is  laid  on  the  employer 
and  the  State  could  foster  a  spirit  of  dependence  among 
workmen.  Surely  it  would  not  cause  any  lessening  of 
individual  thrift.  Compulsory  insurance  means  in  fact  a 
considerable  increase  of  thrift  among  the  working  classes. 
The  entire  earnings  of  workers  are  paid  by  employers  in  the 
first  instance,  and  how  it  could  increase  the  feeling  of  de- 
pendence to  understand  that  employers  contribute  addi- 
tional sums  for  the  purpose  of  defraying  the  cost  of  pensions 
for  infirmity,  old  age,  and  accidents  is  not  clear.  If  any 
such  feeling  developed,  it  would  be  due  only  to  a  realiza- 
tion that  employers  were  contributing  sums  that  were 
gratuitously  given,  over  and  above  what  workmen  were 
entitled  to.  Does  a  workman  whose  employer  generously 
raises  his  wages  above  the  market  level,  feel  more  dependent 
than  before?  He  may  be  grateful  for  the  increase,  but 
usually  he  probably  feels  in  his  heart  that  he  deserved  it. 
That  the  sums  given  for  pensions  are  more  than  the  workers 
are  entitled  to  may  be  "realized"  by  employers.  The 
establishment  of  compulsory  insurance  would  lead  sooner 
to  a  realization  on  the  part  of  workers  that  the  employer 
ought  to  contribute,  than  to  a  feeling  of  dependence  that 
would  be  dangerous  to  the  State. 

1  Cf.  Lass  and  Zahn,  Einrichtung  und  Wirkung,  218  (1900). 


I38  SOCIAL   INSURANCE 

There  may  be  some  danger,  to  be  sure,  that  the  establish- 
ment of  compulsory  insurance  may  lead  to  an  increase  of 
the  share  of  the  burden  which  is  laid  on  the  employer.  But 
demands  for  such  an  increase  of  the  employer's  burden 
would  indicate  a  greater  independence  on  the  part  of  labor 
rather  than  a  weak  or  dangerous  subservience  or  inertia. 
It  may  be  worth  noting  that  the  recent  increase  of  the  bene- 
fits for  survivor  pensions  made  in  the  revision  of  the  Ger- 
man law  of  191 1  was  accompanied  by  an  increase  in  the  con- 
tributions of  workingmen.  The  Social  Democrats  refused 
to  accept  an  amendment  requiring  employers  to  increase 
the  proportion  of  their  contributions  to  sickness  insurance 
from  one  third  to  one  half  to  avoid  a  corresponding  reduc- 
tion in  the  representation  of  workmen  on  the  boards  of 
administration  of  the  sick  funds  from  two  thirds  to  one 
half. 

Finally,  the  effect  on  thrift  of  a  scheme  of  government 
old-age  pensions  remains  to  be  considered.  No  contribu- 
tions of  any  kind  are  required.  Here,  if  anywhere,  there 
will  be  an  adverse  effect  on  thrift.  The  difficulty  in  old-age- 
pensions  legislation  is  that  the  thrifty  are  denied  pensions 
and  the  unthrifty  are  given  them;  the  dependent  are  favored 
and  a  premium  is  placed  on  the  lack  of  thrift. 

Pension  legislation  can  affect  the  thrift  of  the  working 
classes  only  through  lessening  the  desire  to  save,  and  the 
effect  will  depend  largely  on  the  specific  provisions  of  the 
law. 

The  saving  habits  of  persons  approaching  the  pension 
age  may  be  disastrously  affected.  In  Denmark,  pensions 
are  given  at  the  age  of  60  to  persons  who  are  needy  and 
deserving,  and  the  amount  is  measured  by  the  degree  of 
need.  If  the  savings  accumulated  are  large  enough  to 
debar  the  owner  from  qualifying  for  a  pension  there  is  a 
great  temptation  to  squander  them  in  the  years  before 
sixty.     If  the  choice  is  between  living  on  one's  accumulations 


EFFECT    UPON   THRIFT  139 

on  the  one  hand  and  enjoying  one's  accumulations  prior  to 
the  age  of  sixty  and  living  on  a  pension  afterwards,  there 
will  be  a  strong  tendency  to  use  both  the  savings  and  the 
pension.  If  the  pension  is  measured  by  need,  there  is  little 
incentive  to  save  anything.  A  tendency  to  enjoy  savings 
would  be  specially  manifest  where  the  amount  accumulated 
was  not  of  itself  sufficient  to  insure  an  income  as  large  as  the 
pension,  though  large  enough  to  exclude  the  possessor  from 
the  right  to  the  state  allowance. 

If  the  possession  of  property  or  income  by  an  applicant 
for  a  pension  does  not  disqualify,- — in  other  words,  if  the 
exercise  of  thrift  is  not  penalized, — no  adverse  reaction 
upon  the  thrift  habits  of  the  working  population  need 
occur.  No  country  gives  pensions  to  all  without  reference 
to  their  income.  All  sorts  of  special  provisions  are  made  to 
avoid  the  difficulty  of  penalizing  thrift.  The  Australian 
law  gives  a  pension  up  to  £26  per  annum  to  aged  residents 
whose  independent  income  does  not  exceed  £52.  The 
pension  is  graduated  so  that  the  whole  income  including 
the  state  allowance  does  not  exceed  £52  as  a  maximum. 
For  every  complete  £10  of  property  by  which  the  net 
capital  value  of  the  property  exceeds  £50,  a  deduction  of 
one  pound  is  made  from  the  pension.  From  the  capital 
value  of  the  accumulated  property  is  deducted  the  capital 
value  of  a  home  in  which  the  pensioner  permanently  resides 
and  all  charges  and  encumbrances  existing  on  the  property 
other  than  the  home.  Accumulated  property  of  £310 
disqualifies.  If  an  applicant  directly  or  indirectly  disposes 
of  his  property  in  order  to  claim  a  pension  he  also  is  dis- 
qualified. Benefits  received  from  registered  benefit  so- 
cieties, or  benefits  during  illness,  infirmity,  or  old  age,  from 
any  trade  union,  provident  society,  or  other  society  or  asso- 
ciation are  not  counted  as  income  within  the  meaning  of  the 
act.1 

1  The  Official  Yearbook  of  the  Commonwealth  of  Australia,  VII.  1044 
(1914).  Similar  provisions  apply  in  New  Zealand.  Cf.  The  New  Zea- 
land Official  Yearbook,  892-93  (1912). 


140  SOCIAL    INSURANCE 

These  exemptions  avoid  the  danger  of  penalizing  thrift. 
Savings  which  are  made  by  the  average  workman  will  not 
lessen  the  pension  to  which  he  is  entitled.  Practically 
any  provision  that  he  might  make  is  excepted ;  benefits  from 
trade  unions  or  mutual  aid  societies  and  accumulations 
invested  in  a  home  do  not  cause  either  lessening  of  the  pen- 
sion or  disqualification.  The  line  of  division  which  the 
law  seeks  to  draw  is  between  the  accumulations  of  the 
working  class  and  those  of  the  middle  class.  Thrift  is  still 
required  of  the  members  of  the  latter,  who  are  better  able 
to  exercise  it  and  among  whom  it  is  regarded  as  a  prime 
virtue.  The  provisions  of  the  pension  law  encourage  thrift 
among  the  working  classes  by  ensuring  that  their  accumu- 
lated savings  shall  not  affect  the  amount  of  their  pensions. 

The  grant  of  old-age  pensions  would  probably  not  cause 
a  general  diminution  of  thrift.  Pension  legislation  would 
at  most  remove  from  the  motives  that  actuate  the  work- 
men to  save  merely  the  desire  of  providing  for  old  age. 
This  desire  plays  but  a  minor  part  in  saving  among  the 
working  class.  There  is  on  the  whole  little  saving  for  old 
age,  as  is  shown  by  the  large  proportion  of  the  aged  popula- 
tion of  England  and  Australia  that  qualify  for  pensions  of 
five  and  ten  shillings  a  week  respectively.  The  argument 
that  old-age  pensions  will  destroy  thrift  assumes  that  the 
sole  object  of  that  habit  of  economy  is  to  provide  for  old 
age.  Economy  may  be  practiced  for  many  objects.  Other 
motives  for  saving  are  not  affected.  The  desire  to  provide 
education  for  one's  children  or  to  acquire  a  home  would  be 
quite  as  effective  a  stimulus  to  economy  as  before.  A 
habit  of  economy  is  enforced  by  the  conditions  of  life,  and 
there  is  at  best  but  little  room  for  accumulation.  The  idea 
of  pensions  could  not  arise  at  all,  were  it  not  for  the  general 
lack  of  provision  made  by  members  of  the  working  class  and 
the  poverty  among  such  as  reach  old  age.  Pension  legis- 
lation is  enacted  in  simple  recognition  of  the  fact  that 
thrift  among  the  working  class  does  not  provide  for  old  age. 


EFFECT   UPON   THRIFT  I4I 

No  disquieting  effect  on  the  morale  of  thrift  among  the 
working  classes  is,  therefore,  to  be  feared.  Government 
subsidies  directly  encourage  it.  Social  insurance  adds  the 
compulsion  that  makes  thrift  effective.  Old-age  pensions 
may  lead  to  an  undesirable  squandering  of  accumulations 
by  the  population  just  below  the  pension  age  on  the  part 
of  those  whose  savings  are  not  very  large.  If  the  possession 
of  savings  or  income  is  discriminated  against  in  awarding 
or  in  measuring  the  amount  of  assistance,  a  reaction  against 
thrift  may  occur.  With  proper  exemptions,  however,  this 
effect  can  be  reduced  to  a  minimum.  In  general,  pro- 
vision for  old  age  does  not  seriously  reduce  the  effective 
motives  for  saving.  There  are  so  many  other  contingencies 
which  appeal  more  to  the  average  workman,  that  if  in- 
clined and  able  to  save,  he  will  continue  to  lay  by  such 
sums  as  he  can. 


CHAPTER   X 

EFFECT  OF  WORKMEN'S  COMPENSATION  ON  THE  PREVENTION 
OF  ACCIDENTS 

The  effect  of  accident  compensation  on  the  frequency  of 
accidents  and  on  measures  taken  to  insure  safety  is  of  the 
greatest  importance.  The  earlier  doctrine,  that  it  was  the 
best  public  policy  to  have  the  employee  bear  the  risk  of  the 
trade,  rested  not  only  on  the  inherent  justice  of  it  but  also 
upon  the  belief  that  it  was  the  best  method  of  preventing 
accidents.  It  was  held  that  only  by  placing  the  entire 
responsibility  and  loss  on  the  workman  injured  would  he 
use  his  best  efforts  to  prevent  accidents.  On  the  theory  that 
all  accidents  are  caused  by  fault  or  negligence,  what  better 
way  of  lessening  the  frequency  of  accidents  could  be  found? 

This  idea  was  quite  subordinated,  however,  in  some  of  the 
later  developments  of  the  doctrines  of  the  common  law. 
The  insistence  on  the  freedom  of  the  employer  from  lia- 
bility in  cases  where  fellow  servants  were  blamable,  even 
though  working  in  quite  different  occupations,  left  the 
question  of  preventing  accidents  out  of  account.  The 
individual  workman  could  exercise  no  control  over  either 
the  choice  or  the  action  of  his  fellow  worker.  The  doctrine 
of  the  assumption  of  risk  was  extended  even  to  include  cases 
where  employers  had  neglected  to  repair  machinery  or 
install  safety  devices  required  by  law,  if  the  omission  had 
not  been  reported  and  protested  against  by  the  workman. 
This  doctrine  carries  to  its  logical  conclusion  the  accident 
theory  of  common  law  liability:  to  prevent  accidents,  make 
the  employee  responsible.  Nevertheless,  from  a  common- 
sense  viewpoint,  these  rules  of  interpretation  seem  to  strain 
at  a  gnat — what  the  workman  might  have  done  to  prevent 

142 


THE    PREVENTION    OF   ACCIDENTS  143 

the  accident — and  swallow  the  camel — that  the  employer 
had  failed  to  do  what  he  was  required  by  law  to  perform. 

Workmen's  compensation  frankly  puts  the  burden  in 
the  first  instance  on  the  employer.  The  employer  must 
find  means  to  shift  the  burden  to  other  shoulders  or  pay  it 
himself.  One  of  the  most  obvious  methods  of  reducing  the 
cost  of  accident  compensation  is  to  prevent  the  accident. 
By  placing  the  cost  of  the  losses  of  accidents  upon  his 
shoulders  a  most  effective  inducement  is  given  him  to 
install  all  the  best  safety  devices  and  utilize  every  means  in 
his  power  to  lower  the  accident  rates.  Probably  a  majority 
of  employers  do  take  "reasonable"  care  to  avoid  accidents; 
but  charging  them  with  the  costs  of  accidents  will  never- 
theless operate  to  produce  a  much  more  careful  attention 
to  their  causes  and  prevention. 

Placing  the  burden  of  cost  on  the  employers  does  not 
take  away  from  the  workmen  their  interest  in  preventing 
accidents.  The  injured  workmen  still  suffer.  The  pain 
cost  falls  entirely  on  them. 

The  history  of  labor  legislation,  and  of  safety  regulations 
in  particular,  shows  the  relative  power  of  employer  and 
employee  in  preventing  accident.  Laws  have  required 
employers  to  live  up  to  certain  minimum  regulations,  to 
provide  fire  escapes,  to  install  safety  guards  on  dangerous 
machinery  and  other  kinds  of  safety  devices.  Much  still 
remains  to  be  done.  The  law  has  recognized  that  the 
employees  cannot  always  insist,  in  the  wage  bargain,  on 
the  adoption  of  safety  appliances.  From  the  time  of  the 
factory  acts  of  England  in  1802,  legislation,  including  the 
limiting  and  the  prohibition  of  child  labor  and  women's 
labor,  enforcement  of  decent  factory  conditions,  shortening 
of  the  hours  of  work,  etc.,  has  recognized  that  the  way  to 
improve  conditions  of  work  is  to  hold  the  employer  rather 
than  the  employee   responsible. 


144  SOCIAL    INSURANCE 

What  has  been  the  actual  effect  of  workmen's  compensa- 
tion on  the  frequency  and  cost  of  accidents? 

Statistics  of  accidents  are  for  the  most  part  quite  un- 
trustworthy. In  Germany,  where  the  reporting  of  acci- 
dents takes  place  in  connection  with  workmen's  insurance, 
there  are  fairly  satisfactory  records  of  the  more  serious 
accidents.  Since  the  introduction  of  such  insurance  in 
1885,  the  rate  of  fatal  accidents  in  industry  per  1000  in- 
sured persons  decreased  from  a  maximum  of  0.77  in  1887 
to  a  minimum  of  0.56  in  1910. 

The  frequency  of  accidents  causing  permanent  disability 
has  likewise  decreased  from  a  maximum  rate  of  0.73  in 
1887  to  a  minimum  of  0.03  in  1912.  Part  of  this  decline 
may  be  attributable  to  more  careful  classification  of  serious 
accidents.  Accidents  formerly  assumed  to  be  likely  to 
cause  total  permanent  disability  and  placed  provisionally 
in  the  total  disability  column  may  have  proved  to  be  less 
serious.  If  a  closer  scrutiny  and  a  more  careful  sifting  of 
these  cases  now  takes  place  some  of  the  decrease  may  be 
accounted  for.  But  this  would  mean  a  relative  increase 
in  the  partial  or  temporary  disability  classes.  It  is  prob- 
ably true,  moreover,  that  a  substantial  net  decrease  has 
taken  place  in  the  frequency  of  accidents  resulting  in  total 
permanent  disability. 


THE    PREVENTION    OF   ACCIDENTS 


145 


TABLE    I 

NUMBER  OF  ACCIDENTS  PER    IOOO  INSURED  (INDUSTRIAL  CORPORATIONS)1 


Year 


Injuries 
Notified 


Fatal 


Permanent 
Disability 


Total 


Partial 


Temporary 
Disability 


Total 


1886 
1887 
1888 
1889 
1890 
189I 
1892 

1893 
1894 

1895 
1896 
1897 
1898 
1899 
19OO 
1901 
I902 
I903 
1904 

I905 
1906 
I907 
1908 
I909 
I9IO 
19H 
1912 


26.91 
27.42 
04 
42 
38 

94 
49 
23 


29 
30 
3i 
32 
35 
36 
37 
4" 
4i 
42 


0.70 
0.77 
0.68 
0.71 

°-75 
0.71 
0.65 
0.70 
0.65 
0.67 
0.71 
0.70 

0-73 
0.72 
0.74 
0.72 
0.64 
0.63 
0.63 
0.63 
0.63 
0.68 
0.67 
0.62 
0.56 

0-59 
0.65 


0-45 
073 
0-43 
0.48 
0.38 
0.31 
0.30 
0.26 
o.  16 
0.15 
o.  10 
o.  10 
0.08 

0.09 

0.08 
0.09 
0.08 
0.08 
0.08 
0.07 
0.07 
0.06 
0.06 

0.05 
0.05 

0.04 

0.03 


10 

II 

38 
69 

26 

43 
56 
82 
82 
57 
53 
52 
54 
58 
58 
80 
76 
68 
68 
59 
49 
36 
26 
86 

54 
32 
32 


57 

2 . 

53 

4- 

85 

4- 

81 

4- 

97 

5- 

10 

5- 

13 

5- 

•25 

6. 

.62 

6. 

■85 

6. 

•38 

6. 

•  59 

6. 

•75 

7  ■ 

.00 

1  ■ 

.06 

1  ■ 

.46 

8. 

•58 

8. 

•72 

8. 

■92 

8 

•05 

8 

.07 

8 

.26 

8 

•37 

8 

•35 

7 

.24 

7 

.20 

7 

•32 

7 

83 
14 

35 
70 

36 

55 
64 

03 
25 
24 
72 
9i 
10 

39 
46 

07 
06 
11 
3i 
34 
26 
36 
36 
88 

39 
15 
32 


1  Amtliche  Nachrichten,  Uebersicht  1,  XXX.  13.  There  appears  a 
considerable  discrepancy  between  the  figures  as  published  in  the  annual 
reports  and  the  revised  figures.  The  revision  adds  a  few  cases  to  the 
fatal  injuries,  subtracts  a  large  number  from  the  cases  classified  at  first 
as  complete  permanent  disability,  subtracts  a  small  number  from  the 
rates  for  partial  permanent  disability,  and  adds  materially  to  the  number 
of  those  injured  whose  disability  was  temporary.  See,  for  example,  the 
following  table  (New  York  Bureau  of  Labor  Statistics,  Seventeenth 
Report,  II.  763): 


146 


SOCIAL   INSURANCE 


Accidents  involving  partial  permanent  disability  in- 
creased steadily  up  to  a  maximum  of  3.82  per  1000  insured 
in  1893  and  1894,  remaining  nearly  constant  till  1901 
(3.80);  since  when  the  rate  has  steadily  declined  to  2.32  in 
1 91 2.  The  increase  in  the  earlier  years  was  probably 
due  almost  entirely  to  the  better  reporting  of  accidents. 
Workmen  may  at  first  have  been  ignorant  of  their  rights 
in  the  matter  of  compensation.  Part  of  the  increase  may 
further  be  due  to  the  increased  willingness  of  the  authorities 
to  grant  compensation  in  the  form  of  a  small  pension  for 
minor  injuries.  The  decline  in  the  rate  since  1901  is  prob- 
ably to  be  interpreted  as  due  to  increasing  care  in  the  pre- 
vention of  accidents, — the  effect  of  such  preventive  action 
having  previously  been  masked  by  the  increase  in  the 
proportion  of  accidents  which  were  reported. 

Accidents  involving  only  temporary  disability  show  a 
constantly  increasing  proportion,  reaching  a  high  point 
of  4.37  per  1000  in  1908.  Since  then  the  rate  has  re- 
mained nearly  stationary.     Probably  most  of  the  increase 


INJURIES  PER  1000  INSURED 


Permanent  Disability 

Total 
Injuries 

Temporary 

Disability 

Year 

Complete 

Partial 

Annual 

Re- 

Annual 

Re- 

Annual 

Re- 

Annual 

Re- 

Reports 

vision 

Reports 

vision 

Reports 

vision 

Reports 

vision 

1886 

0.70 

0.71 

0.46 

0.09 

1. 13 

1 .09 

0.50 

0.8s 

1887 

0.77 

0.79 

073 

0.13 

2  .10 

1 .92 

0.54 

1 .24 

1888 

0.68 

0.72 

0.44 

0.14 

2.38 

2.18 

0.85 

1 .26 

1889 

0.71 

0.75 

0.49 

0.13 

2.70 

2.45 

0.81 

1.37 

1890 

0.73 

0.75 

0.38 

0. 12 

3    27 

2.95 

0.98 

1-47 

1891 

0.71 

0.74 

0.31 

0. 12 

3  43 

3    12 

1 .  10 

1. 57 

1892 

0.6s 

0.68 

0.30 

0.12 

355 

3    17 

1. 14 

1 .67 

1893 

0.69 

0.74 

0.27 

0.12 

382 

3- II 

1.25 

2.06 

1894 

0.66 

0.69 

0.16 

0.12 

382 

3   23 

1. 61 

2   20 

THE    PREVENTION    OF  ACCIDENTS  147 

is  again  only  apparent,   depending  on  the  higher  propor- 
tion of  accidents  resulting  in  claims.1 

A  decrease  in  the  cost  of  accident  insurance  is  an  index 
of  a  decrease  in  the  accident  rate.  There  has  been  a  marked 
decrease  of  the  cost  in  many  industries.  The  assessment 
in  bridge  construction  (other  than  iron)  declined  from  3.07 
per  cent  of  the  wages  in  1895  to  2.32  per  cent  in  1908.  The 
rate  in  candy  factories  fell  in  1908  to  slightly  over  one  half 
of  the  rate  in  1893.  The  cost  of  accidents  in  railroad  con- 
struction (excluding  tunneling)  in  1908  was  only  half  the 
rate  of  1890.  In  electrical  apparatus  (telegraph,  telephone, 
etc.)  factories  the  cost  has  likewise  been  cut  in  two.  A  rate 
of  0.85  in  1893  in  the  glove  factories  has  been  reduced  to 
0.16  in  1908.  Other  reductions  in  cost  are  shown  in  Table 
II.  A  decline  in  the  rates  of  assessment  in  these  industries 
is  the  more  noteworthy  because  of  the  normal  tendency  of 
the  rates  to  grow  on  account  of  the  method  of  assessing 
simply  the  cost  of  current  pensions.2 

1  "The  general  increase  in  the  total  number  of  accidents  as  stated  in 
official  reports,  is  accounted  for, — according  to  the  competent  authority 
of  the  Reichs-Versicherungsamt, — by  the  following  circumstances: 
(1)  A  better  control  over  the  notifying  of  accidents;  (2)  The  necessity 
of  hiring  unskilled  and  untrained  labor  (especially  in  the  building 
trades)  in  consequence  of  the  sudden  development  of  industry;  (3) 
The  increased  application  of  machinery  in  industry  and,  still  more,  in 
agriculture,  which,  again  are  [is]  in  many  instances  served  by  inexper- 
ienced hands;  (4)  The  better  acquaintance  of  the  working  class  with 
insurance  law,  in  consequence  of  which  its  assistance  is  being  applied 
for  more  frequently  than  formerly;  (5)  The  interpretation  of  the 
meaning  of  '  Betriebsunfall'  (accident  arising  out  of  or  in  the  course  of 
employment)  by  the  Reichs-Versicherungsamt  in  the  liberal  spirit  of 
modern  legislation;  this  leads  to  more  frequent  declaration,  especially 
of  minor  accidents."  Pinkus,  Workmen's  Insurance  in  Germany,  in 
Yale  Review,  XIII.  80  (1904-05). 

2  Cf.  supra,  56,  note. 


i 


148 


SOCIAL   INSURANCE 


TABLE    II 

DECLINE    OF    ACCIDENT    ASSESSMENTS    IN    GERMAN    EMPLOYERS*  MUTUAL 
ACCIDENT    ASSOCIATIONS 


Industry 


Percentage  of  payroll 


Rate  in  the 

Year  Specified 

(Maximum) 


Rate  in 
1908 


Bridge  construction  (other  than  iron) 

Brickmaking  (by  hand) 

Candy  factories 

Carpentry: 

(a)  Cabinet  making  (power) 

(b)  General  contract 

Carriage  factories 

Casting  works: 

(a)  Iron,  without  power 

(c)  Metal 

Celluloid  factories: 

(b)  Articles 

Cleaning  establishments  (chemical) 

Clothing  factories 

Coking  plant 

Construction: 

(a)  Railroad,  excluding  tunneling 

Drayage,  riggers  and  heavy  movers 

Electrical: 

(b)  Installation    of    same    (machinery 
plant) 

(c)  Apparatus     (telegraph,     telephone, 
etc.)  factories 

(d)  Installation  telegraphs,  telephones, 
etc 

(e)  Lighting  and  power  establishments 

Enameled-ware  factories 

Furnaces: 

(c)  Crucible 

(d)  Puddling 

Furniture  factories: 

(a)  Wood 

Glove  factories 

Housesmithing 


3  07 
105 
1.03 

2. 14 
3  07 
i-45 

1.84 
1 .00 

i-47 

1. 14 

.21 

3.00 

4.64 
6.15 


2.07 

.88 

2.07 
1. 71 
1.24 

2-39 
i-74 

2.14 

■85 
1 .90 


1895 
1902 

1893 

1902 

1895 
1903 

1904 
1902 

1893 
1901 
1894 
1905 

1890 
1903 


1902 

1894 

1902 
1902 
1903 

1904 
1894 

1902 

1893 
1892 


2.32 
.70 
■55 

i-93 

2.32 

.84 

1 .42 
.88 

1.06 
.68 

•14 

2.42 

2.30 
4  94 


1 .58 

•44 

1.58 
1 .10 
105 

1.42 
1 .42 

1-93 

.16 

1.36 


THE    PREVENTION    OF   ACCIDENTS 
TABLE  II— Concluded. 


149 


Paper  factories: 

(a)  Envelope 

Quarries: 

(c)  Slate 

Railways,  electric 

Rolling  mills: 

(b)  Heavy  products 

Rubber  and  gutta-percha  manufacturing 
Safe,  etc.  factories: 

(a)  Iron  safes 

(b)  Iron  furniture 

Sewing-machine  factories 

Slaughter  houses 

Steamships: 

(b)  Ocean 

Street  cleaning 

Tinsmithing 

Tobacco  factories  (smoking  tobacco  fac- 
tories with  motor) 

Tool  makers 

Tunneling: 

(a)  Ordinary 

Warehouse  and  storage 


Percentage  of  payroll 


Rate  in  the 

Year  Specified 

(Maximum) 


•53 

2.27 
1.78 

1.84 

1-47 

1.32 
.60 
•52 

1.32 

2.67 

•77 
1 .90 

i-75 
1 .76 

8-34 
2.81 


1901 

1889 
1893 

1904 
1893 

1903 
1892 
1894 
1893 

1899 
1903 
1892 

1901 
1903 

1890 


Rate  in 
1908 


•44 


1.36 
I  .02 

I  .42 
I  .06 

I.03 

■44 

•35 

1. 18 

2.47 

•54 
1  36 

1 .04 
1 .62 

2.79 
2.52 


From  table,  Bulletin  of  the  Bureau  of  Labor,  XXI.    778-783  (19 10). 

Statistics  of  the  causes  of  accidents,  as  shown  in 
Table  III,  throw  some  light  on  the  question  of  its  pre- 
vention. 


150 


SOCIAL   INSURANCE 


TABLE    III 

RESPONSIBILITY   FOR   INDUSTRIAL  ACCIDENTS  IN  GERMANY  ' 


Percentage  of  all  Accidents  Due  to 
Cause  Specified  in: 

1887 

1897 

1907 

Fault  of  employer 

20.47 

26.56 

4.61 

3  40 
44.96 

17.30 

29.74 

4-83 

5-31 

41-55 

1 .27 

12.06 
41 .26 

Fault  of  both  employer  and  employee  . 

0.91 
5-94 

General  hazard  of  industry 

37  65 

2.18 

1  Rubinow,  Social  Insurance,  74. 

In  interpreting  the  figures  of  Table  III  a  most  striking 
fact  is  the  decrease  in  the  percentage  of  accidents  due  to 
fault  of  employer  from  20.47  in  1887  to  12.06  in  1907.  The 
system  of  compulsory  accident  insurance,  introduced  in 
1885,  placed  all  the  cost  on  the  industry.  Analysis  of  the 
accidents  due  to  fault  of  employer  gives  the  distribution 
shown  in  Table  IV.  The  percentage  of  the  total  accidents 
due  to  absence  of  safety  appliances  has  shrunk  from  11.03 
in  1887  to  4.69  in  1907.     The  influence  of  the  imposition 


TABLE   IV 

ACCIDENTS   DUE  TO  THE   EMPLOYER'S  FAULT  * 


Accident  Due  to 


1887 


1897 


1907 


Defective  apparatus 

Absence  of  safety  appliances 
Absence  of  proper  regulations 


Per  cent 

7.28 

II    03 

2.l6 

20.47 


Per  cent 

7-15 
7.82 
I.84 

16.81 


Per  cent 

5-40 
4.69 
1.97 

12  .06 


1  lb.  75- 


THE    PREVENTION   OF   ACCIDENTS 


151 


of  the  cost  on  the  employer  can  be  clearly  seen  in  these 
figures. 

A  noteworthy  decline  is  shown  also  in  the  percentage 
of  accidents  due  to  the  general  hazard  of  industry.  This 
decrease  may  be  due  to  better  regulations  and  may  prob- 
ably also  be  ascribed  in  some  measure  to  the  employer's 
liability  for  the  cost  of  accidents. 

The  percentage  of  accidents  caused  by  the  fault  of  the 
injured  employee  has  shown  a  great  increase  during  the 
period,  rising  from  26.56  per  cent  of  all  accidents  to  41.26 
per  cent.  This  increase  may  be  due  partly  to  the  increase 
in  proportion  of  cases  reported  where  the  workman  was 
injured  by  his  own  fault.  Workmen  may  not  have  known 
so  generally  in  1887  that  they  would  be  entitled  to  compen- 
sation for  accidents  caused  by  their  own  fault  as  they  did 
in  1907.  These  figures,  if  they  mean  that  the  workman  is 
becoming  less  careful  or  less  disposed  to  prevent  accidents, 
suggest  a  serious  criticism  of  social  insurance. 

TABLE  V 

PERCENTAGE  OF   INDUSTRIAL   ACCIDENTS  DUE  TO  CAUSES  CLASSIFIED  AS 
FAULT  OF  EMPLOYEE,   BY  NATURE  OF  FAULT  l 


Accident  Due  to 


1887 

1897 

17.09 

20.85 

1.82 

1 .92 

5-35 

5-44 

2.05 

1. 19 

•25 

■  49 

26.56 

29.89 

1.  Lack  of  skill,  inattention,  etc 

2.  Failure  to  use  existing  protective  ap- 

pliances   

3.  Actions   contrary    to    existing    regula- 

tions  

4.  Actions  of  horseplay,  mischief,  intoxi 

cation 

5.  Unsuitable  clothing  (aprons,  neckties 

etc.) 


28.96 

2.22 

9.48 

0-55 

■05 

41 .26 


1  Rubinow,  Social  Insurance,  76. 


152  SOCIAL   INSURANCE 

Accidents  caused  by  the  fault  of  the  employee  are  dis- 
tributed as  shown  in  Table  V.  The  total  increase  in  the 
percentage  of  accidents  due  to  fault  of  injured  employees 
was  about  14.7  in  the  twenty-year  period.  The  percentage 
of  accidents  due  to  lack  of  skill,  inattention,  etc.,  increased 
by  nearly  12.  The  percentage  of  accidents  due  to  actions 
contrary  to  existing  regulations  increased  by  slightly  over 
4,  while  the  percentage  for  actions  resulting  from  horse- 
play, intoxication,  etc.,  decreased  from  2  to  0.5. 

The  great  increase  in  the  percentage  of  accidents  due  to 
inattention,  lack  of  skill,  etc.,  and  to  some  extent  to  actions 
contrary  to  existing  regulations  is  to  be  attributed,  as 
Rubinow  points  out,  to  the  increase  of  speed  and  of  fatigue 
in  modern  industry.1  Part  of  this  increase,  however,  may 
be  due  simply  to  a  greater  degree  of  completeness  in  return- 
ing reports  of  the  minor  accidents  resulting  from  inatten- 
tion. Studies  of  the  accident  rate  by  the  hour  of  the  day 
and  by  the  day  of  the  week  show  that  the  accident  fre- 
quency increases  in  the  forenoon,  falls  off  after  the  noon 
period,  and  rises  again  in  the  late  afternoon;  and  that 
accidents  are  most  frequent  on  Monday,  Friday,  and 
Saturday.  Fatigue  seems  to  have  a  considerable  effect  on 
the  accident  rate. 

With  these  two  explanations  of  the  increase  in  the  pro- 
portion of  accidents  in  which  the  employee  was  at  fault — 
i.e.  the  statistical,  that  a  larger  proportion  especially  of 
minor  accidents  are  now  reported  where  the  employee  was 
responsible,  and  the  psychological,  that  it  is  due  largely  to 
inattention,  lack  of  skill,  etc.,  caused  by  increased  speed 
and  fatigue, — there  remains  no  ground  for  any  fear  that 
workmen  are  becoming  criminally  careless  under  the  "de- 
moralizing effect"  of  workmen's  insurance. 

The  frequency  of  accident  has  been  materially  diminished 
in  Germany  under  workmen's  compensation.  But  in  other 
countries  under  other  conditions  the  accident  rate  has  also 

1  Rubinow,  Social  Insurance,  77-82. 


THE   PREVENTION   OF  ACCIDENTS  1 53 

declined.  Comparable  statistics  of  the  trend  of  the  fre- 
quency of  accidents  are  not  available.  English  figures 
showing  the  decline  of  the  mortality  from  accident  are  not 
quite  comparable  because  they  include  not  only  those  fatal 
accidents  arising  out  of  the  course  of  employment  but  all 
cases  of  death  by  accident.  The  "  safety  first"  movement  is 
not  necessarily  dependent  on  a  peculiar  form  of  accident 
insurance.  Safety  legislation  may  effectively  reduce  the 
possibilities  of  accident  in  the  absence  of  workmen's  com- 
pensation. Nevertheless,  the  imposition  of  the  entire  bur- 
den of  cost  upon  the  employer  in  such  a  way  that  he  can 
diminish  it  by  reducing  the  danger  in  the  establishment 
must  add  to  the  efficacy  of  safety  legislation.  In  efforts  to 
reduce  industrial  accidents  forms  of  organization  and 
administration  are  important.  Where  responsibility  for 
enforcing  safety  laws  is  placed  in  one  branch  of  industry 
with  a  commission  and  in  another  with  an  industrial  board, 
where  inspectors  of  competing  insurance  companies  make 
guesses  as  to  the  classification  of  a  given  factory  in  a  risk 
group,  there  is  a  complete  disorganization  of  the  adminis- 
trative machinery  for  preventing  accidents.  The  reports 
of  factory  inspectors  have  nothing  to  do  with  the  classifica- 
tion of  the  employer  by  the  insurance  company;  their 
activities  are  confined  to  the  enforcement  of  special  factory 
legislation.  Conditions  of  competition  among  insurance 
companies  may  lead  one  to  accept  a  poor  risk  after  another 
has  rejected  it.  The  employer  does  not  feel  any  particular 
interest  in  lessening  the  losses  of  the  insurance  company  and, 
having  once  paid  his  premium,  is  not  inclined  to  lay  out 
more  money  in  the  interest  of  mere  safety. 

The  organization  of  accident  prevention  in  Germany  con- 
centrates responsibility  and  the  cost  upon  mutual  employ- 
ers' associations.  Inspection  of  factories  and  classification 
in  risk  groups  is  made  by  these  mutual  corporations.  The 
inspection  is  made  with  a  view  to  the  assessment  of  cost. 
The  associations  have  power  to  issue  accident  regulations, 


154  SOCIAL   INSURANCE 

which,  when  approved  by  the  Reichs-Versicherungsamt, 
become  binding  upon  all  employers  in  the  association. 
Accident  regulations  are  framed  by  persons  in  the  business 
who  are  looking  for  a  chance  to  save  money  by  reducing  the 
expense  of  the  burden  of  unnecessary  injuries.  Installa- 
tion of  safety  machines  and  appliances  and  the  planning 
of  factories  with  adequate  floor  space  are  made  matters  of 
pecuniary  importance  by  placing  the  cost  of  accidents  on 
industry.  Unsafe  establishments  are  penalized  with  a 
heavier  rate.  Furthermore,  the  active  cooperation  of  the 
workmen  is  secured.  Representatives  of  the  workers  are 
consulted  with  reference  to  new  regulations,  and  inspectors 
representing  labor  help  to  see  that  the  workmen  observe  the 
rules.  Complete  statistics  of  the  causes  of  injuries  are 
obtained  and  full  knowledge  upon  which  to  base  effective 
preventive  regulations  is  at  hand.  The  entire  organization 
is  admirably  adapted  to  securing  effective  safety  conditions 
in  industry,  and  an  essential  feature  of  it  is  the  imposition 
of  the  burden  of  cost  upon  the  industry.1 

1  Though  somewhat  aside  from  the  question  of  an  increase  of  acci- 
dents and  more  concerned  with  purely  medical  matters,  the  alleged 
prevalence  of  "accident  neurosis"  and  the  increase  in  length  of  time  of 
recovery  in  certain  cases  of  injury  may  be  briefly  discussed.  Professor 
Bernhard  in  his  Unerwiinschte  Folgen  der  deutschen  Sozialpolitik  tried 
to  show  a  serious  moral  decay  among  the  working  class  in  increase  of 
simulation,  pension  hysteria,  in  the  organized  method  of  pressing  claims 
for  pensions  through  certification  of  injuries  by  "workmen's"  physi- 
cians, and  in  systematic  appeal  of  cases  through  their  own  attorneys, 
etc.  Bernhard's  conclusions  as  to  these  evils  were  sweeping  and  were 
based  on  medical  opinions  rather  than  on  statistical  evidence.  Medical 
opinion  of  the  prevalence  of  accident  neurosis  is  divided.  The  only 
valuable  statistical  evidence  on  the  question  was  discarded.  This 
evidence  shows  that  the  occurrence  of  such  neurosis  is  quite  negligible. 

Evidence  as  to  an  increase  in  the  average  length  of  recovery  from 
certain  injuries  seems  to  be  better  substantiated.  Fassbender  and 
others  show  that  the  longer  period  of  convalescence  is  due  to  "more 
careful  observation  of  cases  and  is  really  desirable.  Laborers  are  no 
longer  allowed  to  return  to  work  before  complete  recovery."  (Gan- 
nett, Bernhard's  Unerwiinschte  Folgen  der  deutschen  Sozialpolitik  and  its 


THE    PREVENTION    OF   ACCIDENTS  1 55 

Critics,  in  Quarterly  Journal  of  Economics,  XXVIII.  561-569.  1914). 
As  for  efforts  made  by  workmen  to  secure  compensation  if  they  are 
entitled  to  it  no  complaint  can  be  made.  All  that  is  required  is  a  care- 
ful sifting  of  the  unreasonable  from  the  reasonable  claims.  The  statis- 
tics of  the  cases  of  appeals  show  that  a  large  proportion  of  them  are 
refused.  Where  the  amount  of  compensation  for  injury  is  fixed  by  the 
head  of  the  employer's  mutual  accident  association  or  his  representative, 
some  form  of  appeal  must  be  provided  for  the  workman.  The  figures 
showing  the  reduction  of  the  number  of  serious  accidents  and  especially 
the  reduction  of  cost  in  many  industries  point  to  the  really  significant 
facts. 

Cf.  Gannett,  561-578,  and  the  references  there  cited,  especially 
Hitze  (Fassbender),  Zur  Wiirdigung  der  deutschen  Arbeiter-Sozialpolitik. 
Kritik  der  Bernhardschen  Schrift :  Unerwiinschte  Folgen  der  deutschen 
Sozialpolitik. 


CHAPTER   XI 

CONCLUSIONS 

The  consideration  of  the  question  which  was  raised  in  an 
early  chapter  and  deferred  until  the  economic  incidence  of 
the  burden  and  the  effects  of  the  burden  of  cost  upon  in- 
dustry and  wages  had  been  studied  may  now  be  resumed. 
Do  the  advantages  of  social  insurance  outweigh  the  dis- 
advantages? Is  there  such  a  balance  in  favor  of  a  policy 
of  compulsory  insurance  as  to  justify  the  imposition  of  the 
necessary  burden  of  cost  upon  industry? 

The  positive  advantages  are  clear  and  important.  Com- 
pensation for  the  injuries  and  deaths  caused  by  accident 
removes  from  the  shoulders  of  the  injured  man  and  his 
family  the  severe  economic  losses  for  which  in  the  majority 
of  cases  they  are  not  responsible.  Workmen's  compensa- 
tion eliminates  the  wastes  of  the  present  system  of  em- 
ployers' liability  and  gives  adequate  compensation  at  a 
reasonable  cost.  Compulsory  insurance  against  sickness 
protects  the  workman  against  the  disastrous  consequences 
of  a  temporary  or  complete  stoppage  of  income.  Provision 
for  old  age  makes  the  lot  of  the  aged  workman  free  from 
anxiety  and  from  the  shame  of  the  poorhouse.  Conditions 
of  life  are  made  more  secure  and  the  individual  is  protected 
against  the  principal  contingencies  which  are  likely  to 
precipitate  those  who  are  affected  below  the  line  of  decent 
or  adequate  subsistence.  Insurance  reduces  the  uneven- 
nesses  and  irregularities  of  the  income  of  the  individual.1 

Furthermore,  fruitful  causes  of  discontent  among  the 
working  class  are  removed.  Under  present  methods  of 
settling  compensation  for  accidental  injuries,  friction 
between  employer  and  employee  is  prone  to  arise.     The 

1  Cf.  Pigou,  Wealth  and  Welfare,  408-420. 

156 


CONCLUSIONS  I57 

amount  of  compensation  is  a  question  not  of  the  equities 
of  the  case  but  of  technical  legal  liability.  To  press  a 
claim  means  too  often  the  loss  of  position  for  the  workman. 
The  policy  of  the  insurance  company  to  keep  the  benefits 
at  the  lowest  legal  minimum  is  substituted  for  the  more 
reasonable  policy  which  an  individual  employer  might 
prefer. 

The  advantages  of  each  branch  of  insurance  must  be 
compared  with  the  cost  which  will  thereby  be  placed  upon 
industry.  The  analysis  of  the  economic  incidence  of  the 
burden  of  social  insurance  in  general  shows  that  there  is 
little  danger  of  a  serious  effect  upon  industry.  The  cost 
of  insurance  is  so  small  a  proportion  of  the  total  cost 
of  production  that  disastrous  consequences  to  industry  are 
not  to  be  feared.  In  some  industries  the  cost  may  be  shifted 
to  the  consumer.  In  others  the  added  cost  will  be  met  by 
improvements  in  processes  and  kindred  economies.  Diffi- 
culties would,  at  the  worst,  be  limited  to  a  few  industries 
and  a  few  establishments.  The  economic  burden  of  in- 
surance and  the  pains  of  the  shifting  process  do  not  represent 
a  very  great  social  cost. 

The  fear  that  thrift  among  the  working  classes  will  be 
destroyed  is  in  large  measure  groundless;  compulsory  in- 
surance will  rather  encourage  and  stimulate  thrift.  The 
frequency  of  serious  accidents  in  Germany  has  declined  since 
the  introduction  of  compulsory  insurance.  The  imposition 
of  the  cost  of  accidents  upon  the  employer  encourages  the 
prevention  of  accidents.  Remote  social  effects  give  no 
cause  for  apprehension;  on  the  contrary  the  balance  of 
advantage  is  in  favor  of  the  policy  of  compulsory  insurance. 

This  discussion  of  the  economic  aspects  of  social  insurance 
has  necessarily  been  of  a  general  nature.  There  are  a 
multitude  of  questions  of  detail  which  must  be  answered, 
many  specific  problems  must  be  solved,  before  a  given 
measure  can  be  approved.  For  workmen's  compensation 
legislation  in  this  country,  a  special  difficulty  which  must 


I58  SOCIAL    INSURANCE 

sometimes  be  removed  is  that  of  constitutionality.  Some 
states  have  tried  to  avoid  a  conflict  with  the  constitution 
by  making  it  optional  with  the  employer  to  elect  workmen's 
compensation,  making  it  at  the  same  time  to  his  advantage 
to  do  so  by  removing  the  usual  common  law  defences  against 
employers'   liability. 

Then  there  is  the  question  of  the  organization  of  insurance: 
Shall  employers  be  required  to  insure  in  a  state  fund,  or  be 
forced  to  form  employers'  associations,  or  permitted  to 
insure  in  private  mutual  or  stock  companies?  How  are 
the  rates  to  be  controlled?  Shall  awards  be  made  by  an 
administrative  commission  or  by  local  boards  of  arbitra- 
tion? How  is  general  interference  with  the  administra- 
tion of  the  law  by  the  courts  to  be  prevented? 

These  are  a  few  of  the  many  questions  of  detail  that  arise 
in  connection  with  workmen's  compensation  legislation. 
Compulsory  insurance  against  sickness  or  old  age  or  inva- 
lidity has  not  as  yet  been  seriously  pressed  in  this  country. 
Proposals  for  old-age-pension  legislation  have  indeed  been 
made,  but  discussion  has  not  yet  reached  the  stage  where 
it  is  a  question  of  how  the  objects  sought  may  best  be  at- 
tained. 

Questions  of  administration  or  organization,  important 
as  they  may  be,  are  not  usually  fundamental.  A  good 
organ  of  administration  may,  indeed,  make  the  difference 
between  relative  success  and  failure.  Cheapness  of  in- 
surance together  with  the  effective  prevention  of  accidents 
may  have  considerable  effect  on  the  burden  which  accident 
compensation  places  upon  industry;  these  may  be  secured 
by  efficient  administration.  But  the  fundamental  question 
of  the  social  advantage  of  compulsory  insurance  legislation 
as  compared  with  the  weight  of  the  cost  can  be  answered 
without  solving  all  the  problems  of  detail. 

The  whole  movement  is  part  of  a  tendency  to  develop 
a  new  standard  of  human  happiness.  The  increase  of 
wealth  in  a  nation  is  not  the  supreme  end  of  its  existence. 


CONCLUSIONS  159 

The  past  century  has  seen  a  vast  increase  of  wealth,  and 
probably  the  portion  of  each  is  on  the  average  larger.  The 
poorest  now  have  advantages  and  opportunities  in  educa- 
tion, etc.,  that  the  workmen  of  past  generations  did  not 
know.  But  with  the  increase  of  wealth  the  center  of  atten- 
tion is  passing  away  from  the  questions  of  greater  produc- 
tion to  the  problems  of  a  more  equal  and  equitable  dis- 
tribution. The  elimination  of  poverty  and  the  alleviation 
of  the  hardships  of  those  who  are  among  the  less  fortunately 
placed  are  the  questions  of  the  coming  age.  The  provision 
of  compulsory  insurance  against  sickness,  accident,  and 
superannuation,  is  a  definite  step  toward  the  realization  of 
these  ideals. 


LIST  OF   AUTHORITIES   CITED 

Amtliche  Nachrichten  des  Reichsversicherungsamts,  XXVIII. 
XXX.  Berlin. 

Bericht  der  VIII.  Kommission  vom  26  Juni  1879.  Stenographische 
Bericht  des  Reichstags,  4  Legislative  Periode,  2d  Session,  1879, 
VI.     Drucksachen  des  Reichstags,  No.  314. 

Branchart,  Zur  Frage  der  Belastung  der  deutschen  Industrie  durch  die 
Arbeiterversicherung.  Zeitschrift  fur  die  gesamte  Versicherungs- 
Wissenschaft,  XIV.  475-492. 

Brown,  H.  D.  Civil  Service  Retirement,  Great  Britain  and  New 
Zealand.  Senate  Document  No.  290,  61st  Congress,  2d  Session. 
Washington,  1910. 

Savings  and  Annuity  Plan  proposed  for  Retirement  of  Super- 
annuated Civil  Service  Employees.  Senate  Document  No.  745, 
61st  Congress,  3d  Session.     Washington,  191 1 . 

Bulletin  of  the  Bureau  of  Labor  (later,  Bureau  of  Labor  Statis- 
tics), No.  126,  Workmen's  Compensation  Laws  of  the  United 
States  and  Foreign  Countries;  No.  141,  Lead  Poisoning  in  the 
Smelting  and  Refining  of  Lead.     Washington. 

Bulletin  of  the  Interstate  Commerce  Commission.  Revenues 
and  Expenses  of  Steam  Roads  in  the  United  States.  No.  49. 
Washington,  1913. 

Census  of  England  and  Wales,  1911.  VII.  Ages  and  Condition  as 
to  Marriage.     Cd.  6610.     London,  1913. 

Census  of  Ireland,  1911.  General  Report  with  Tables  and  Appendix. 
Cd.  6663.     London,  1913. 

Commissioners  of  His  Majesty's  Customs  and  Excise.     Report  of 
the  year  ended  31st  March  1912.     Cd.  6462.     London,  1912. 

Conrad,  J.  and  others.  Handworterbuch  der  Staatswissenschaften. 
1st  ed.,  1890.     3d.  ed.,  Jena,  1909-1911.     7v. 

Dawson,  M.  M.  Cost  of  Employers'  Liability  and  Workmen's  Com- 
pensation Insurance.     Bulletin  of  the  Bureau  of  Labor,  No.  90. 

Dawson,  W.  H.  Social  Insurance  in  Germany,  1883-1911.  Its  His- 
tory, Operation,  Results  and  a  Comparison  with  the  National 
Insurance  Act,  191 1.     London,  1912. 

Denkschrift  der  Hansa  Bunds,  IX.     Die  offentlich-rechtlichen  Belas- 
tungen  von  Gewerbe,  Handel,  und  Industrie.     Berlin,  1912. 
160 


AUTHORITIES  CITED  l6l 

Freund,  R.  Armenpflege  und  Arbeiterversicherung.  Priifung  der 
Frage,  in  welcher  Weise  die  neuere  soziale  Gesetzbegung  auf  die 
Aufgaben  der  Armengesetzgebung  und  Armenpflege  einwirkt. 
Schriften  des  Vereins  fur  Armenpflege  und  Wohltatigkeit,  XXI. 

Gannett,  L.  S.  Bernhard's  Unerwiinschte  Folgen  der  deutschen 
Sozialpolitik  and  its  Critics.  Quarterly  Journal  of  Economics, 
XXVIII.  561-578. 

General  Report  on  the  Wages  of  the  Manual  Labour  Classes  in 
the  United  Kingdom;  with  Tables  of  the  Average  Rates  of 
Wages  and  Hours  of  Labour  of  Persons  Employed  in  Several  of 
the  Principal  Trades  in  1886  and  1891.     C.  6889.     London,  1893. 

Greissl.  Wirtschaftliche  Untersuchung  iiber  die  Belastung  der  deut- 
schen Industrie  durch  die  Arbeiterversicherungs-und  Schutz- 
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Die  offentlichen  Lasten  der  deutschen   Industrie.     Preussische 

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Kaskel,  W.  and  Sitzler,  F.  Grundriss  des  sozialen  Versicherungs- 
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Massachusetts,  Commission  on  Old  Age  Pensions,  Annuities, 

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Report,  Part  III.     Uniform  Hours  of  Labor.     Boston,  1881. 
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INDEX 


Accident  insurance,  cost  of  ad- 
ministration, 51;  division  of 
cost,  12,  5,  51;  effect  of  wages, 
114-115,  117-118,  123-124,  56; 
extent  of,  15-16,  12;  Germany, 
5,  12,  75-76;  United  States, 
27,  28;  when  adopted,  13.  See 
Employers'  liability,  Workmen's 
compensation. 

Accident   neurosis,    alleged,    154- 

Accident  rate,  and  social  insurance, 
37;  decrease  of,  42-43,  144-149; 
in  different  industries,  39, 
7°~73'>  and  workmen's  com- 
pensation, 142-155.  See  Work- 
men's compensation. 

Accidents  and  workmen's  com- 
pensation, 157. 

Administration,  cost  of,  work- 
men's compensation  and  em- 
ployers' liability,  51;  methods 
of,  and  accidents,  158. 

Administrative  precedents,  Ger- 
many, 8. 

Advantages  of  social  insurance,  I, 
22-23,  31,  156-157. 

Apprentices,  protection  for,  Ger- 
many, 6,  8. 

Attitude  of  workmen  to  liability  of 
employers,  39. 

Australia,  old-age  pensions,  18; 
pensions  and  thrift,  139. 

Belgium,   statistics   of   insurance, 

16;  subsidized  old-age  insurance, 

135-136,  33- 
Benefits,    of    employers'    liability 

compared  to  premiums,  51-54; 

mining   industry   law,    1854,  9; 

social  insurance,  Germany,  75- 

77- 
Bernhard's    Unerwiinschte   Folgen, 

_  154-155- 

Brakemen,  wages  of,  66-68. 
Brewery,  Schultheiss,   Burden  ol 
insurance  and  taxes,  94-96. 


Burden  of  social  insurance,  37; 
collection  proceedings,  97-98; 
conclusion,  99;  defined,  100;  dis- 
cussion, historical,  in  Germany, 
86-99;  equalized  by  taxes  and 
high  wages  abroad,  90;  ex- 
pansion of  export  trade,  86,  99, 
88;  foreign  trade,  87,  89;  im- 
provement of  technique,  < 
increase  of  wages,  86;  in  per- 
centage of  gross  income,  91 
insurance  and  taxes,  88-89,  92 
94-96;  relative  unimportance  of 
86,   88;    shift    to  workers,    ! 

Capital,  cost  of  social  insurance 
in  per  cent  of  capital,  82-83; 
effect  of  insurance  on,  107-109; 
on  fluid  capital,  109;  on  invested 
capital,  107-108;  effect  on 
accumulation,  110-112. 

Civil  War  pensions,  U.  S.,  20. 

Coal  mining  company,  burden  of 
insurance  in,  91. 

Code  of  191 1,  Germany,  insur- 
ance, 12. 

Collection  proceedings,  Germany, 
97-98. 

Common  law  liability,  U.  S.,  40; 
rules  of  interpretation,  41,  142; 
in  Germany,  4. 

Communal  optional  compulsion, 
Germany,  8,  10. 

Comparative  mortality  from  ac- 
cident, 63,  71-73;  general 
laborers,  63;  railway  men,  63. 

Comparative  mortality  and  wages, 

70-73-. 

Compulsion,  principle  of,  n, 
31-36;  local  communal,  Ger- 
many, 8,  10;  opposition  to,  35; 
survival  of  the  fittest  and,  35. 

Compulsory  insurance,  against 
old  age  and  invalidity,  14; 
against  sickness,  extent,  13; 
Germany,  mining  industry,  6; 
thrift  and,  136-138.     See  Work. 


165 


1 66 


INDEX 


men's  compensation,  Employers' 
liability,  Sickness  insurance, 
Old-age  pensions. 

Conditions  in  Europe  and  Amer- 
ica, 21. 

Constitutionality  of  workmen's 
compensation  laws,  19-20,  158. 

Contributory  negligence,  41,  142. 

Cost  of  accident  compensation, 
decrease  in,  147-149;  of  accident 
liability,  United  States,  38; 
administration,  employers'  lia- 
bility insurance,  51;  German 
accident  insurance,  51;  em- 
ployers' liability,  burden  on 
injured  workmen,  51-54. 
Social  insurance  in  Germany, 
77-84;  in  per  cent  of  wages, 
78-79;  in  per  cent  of  capital, 
82-83;  i°  Per  cent  of  dividends, 
83,  89;  in  per  cent  of  value  of 
output,  83-85,  86;  per  employee 
per  year,  79-82.  Workmen's 
compensation  in  United  States, 
44-51;  comparative  rates,  spec- 
ified industries,  45-51;  com- 
parative rates,  state  and  private 
insurance,  48-51;  in  Germany, 
44,  45-51;  selected  dangerous 
industries,  44.  See  Division  of 
cost. 

Dangerous  industries,  rates  for 
employers'  liability  and  work- 
men's compensation,  44-51. 
See  Risk,  Wages. 

Decrease  in  accident  rate,  42-43; 
in  cost  of  compensation, 
Germany,  147-149. 

Deductions  from  wages,  opposi- 
tion to,  France,  35,  131;  Law- 
rence strike,  121.     See  Wages. 

Demand  for  labor,  effect  of  in- 
surance on,  in;  accident  com- 
pensation, differential  effect, 
123;  localized,  124;  general 
discussion,  124-126;  new  de- 
mand from  pensioned  classes, 
126. 

Denmark,  old-age  pensions,  14; 
old-age  pensions  and  thrift,  138; 
voluntary  sickness  and  insur- 
ance, 14,  16. 


Dividends,  affected  by  social 
insurance,  83,  89,  91,  92,  94-99. 

Division  of  cost  between  em- 
ployer, employee,  and  state,  3, 
35;  accident  insurance,  36; 
sickness  insurance,  36,  8;  old- 
age  insurance,  36-37;  no 
change  in  Germany,  138; 
Germany,  mining  industry,  8; 
old-age  insurance,  36;  sickness 
insurance,  8,  36;  social  insur- 
ance, 12,  77. 

Employers'  liability  and  accident 
rate,  142 ;  attitude  of  workers  to, 
40;  benefits  compared  to  pre- 
miums, 51-54;  common  law  lia- 
bility U.  S.,  40;  common  law 
rules  modified,  40-42;  cost  of, 
burden  on  injured  workmen, 
51-54;  Germany,  4;  mining 
industry,  7;  insurance,  55;  for 
seamen,  Germany,  7.  See 
Accident  rate,  Workmen's  com- 
pensation. 

Enterprise,  conditions  in  state 
attracting  enterprisers,  109-110; 
effect  of  insurance  on,  109. 

Establishment  funds,  death  bene- 
fits, U.  S.,  27;  sickness  insur- 
ance, U.  S.,  29. 

Expansion  of  export  trade,  Ger- 
many, 86,  99. 

Export  trade,  expansion,  Ger- 
many, 86,  89. 

Fault    of    employer,   as  cause  of 

accident,  150-151;  of  employee, 

151-152. 
Fellow  servant  rule,  41,  142. 
France,    accident    insurance,    13, 

16;  deductions  from  wages,  35, 

121;    old-age    pensions,    14-16; 

school,     savings     32;     sickness 

insurance,    14,    16;    subsidized 

old-age  insurance,  135. 
Fraternal  insurance,  26-30;  death 

benefits,  27. 
Friendly  aid  societies,  Germany,  9. 

See  Mutual  aid  societies. 
Funds,     establishment,     27,     29; 

railroad,     29-30;     trade-union, 

28-29. 


INDEX 


167 


Funeral   insurance,    25-27;   bene- 
fits, 76. 

Germany,  accident  insurance,  5, 
I2>  75~76,  51;  administrative 
precedents,  8 ;  benefits  and  scope 
of  social  insurance,  74-77;  bur- 
den of  insurance,  discussion, 
86-99;  code  of  191 1,  12;  com- 
pulsion, local  communal,  8; 
compulsory  insurance  against 
sickness,  13;  against  old-age 
and  invalidity,  14;  cost  of  ad- 
ministration of  accident  insur- 
ance, 51;  of  social  insurance, 
77-84;  in  per  cent  of  wages, 
per  employee,  per  year, 
in  per  cent  of  capital,  of 
dividends,  output,  78-84;  of 
workmen's  compensation,  44, 
45~5I;  division  of  cost,  8,  12, 
77;  no  change  in,  138;  em- 
ployers' liability,  4;  expansion 
of  export  trade,  86,  99;  extent 
of  insurance  in,  1912,  15; 
friendly  societies,  9;  mining 
industry,  8;  old-age  insurance, 
19;  railroads,  liability,  4;  sea- 
men, liability  for,  7;  servants, 
liability  for,  7;  sickness  in- 
surance, 11,  74-75,  77,  5-10, 
13,  15;  social  insurance,  4-12, 
74~99»  15;  voluntary  provision 
for  old  age,  10. 
Guilds,  insurance  in,  6. 

Hazard  of  industry,  general,  150; 

attitude  toward,  39-40. 
Health    insurance.     See    Sickness 

insurance. 

Incidence  of  cost  of  accidents,  55, 

55-73- 
Increase  of  wages,  Germany,  86, 

88,  93- 
Industrial     establishment     funds, 

U.  S.,  26-27,  29- 
Industrial    insurance,    lapses,    23, 

26;  loading,  24;  thrift  and,  137; 

in  United  States,  25-6. 
Industrial    revolution   and    social 

insurance,  1,21. 
Injuries,    compensation    for.     See 

Accident  insurance,  Workmen's 


compensation,  Employers'  lia- 
bility. 

Insurance,  see  Accident  insurance, 
Benefits,  Burden,  Capital, 
Compulsory  insurance,  Cost, 
Division  of  cost,  Employers' 
liability,  Germany,  Industrial 
insurance,  Old-age  insurance, 
Old-age  pensions,  Sickness  in- 
surance, Social  insurance,  Work- 
men's compensation,  etc. 

Invalidity  insurance  in  Germany, 
76-77. 

Ireland,  old-age  pensions,  18. 

Knappschaftskassen,  Insurance 
in,  Germany,  6,  10. 

Labor,  effect  of  insurance  on,  111, 
123-126,  114-117.  See  De- 
mand for  labor,  Supply  of  labor, 
Psychology,  Wages,  Laborers, 
General,  Mortality  from  acci- 
dent, 63;  Lapses,  industrial 
policies,  U.  S.,  23,  26. 

Lawrence  strike,  121. 

Legal  theory  of  risk  and  wages,  57 ; 
of  accident  prevention,  142. 

Liability  of  employers.  See  Em- 
ployers' liability,  Workmen's 
compensation,  Cost,  etc. 

Loading,  industrial  insurance,  24. 

Massachusetts,  Savings  bank  in- 
surance, 30. 

Massachusetts  Commission  on 
Old-Age  Pensions,  arguments 
of,  1 18-120. 

Miners'  associations,  Germany, 
10. 

Mining  industry,  Germany,  in- 
surance in,  6-1 1 ;  benefits,  9; 
division  of  cost,  8;  employers' 
liability,  7;  law  of  1854,  8. 

Mining  company,  coal,  Germany, 

91  • 

Mortality  from  accident,  com- 
parative, 63,  71-73- 

Mutual  aid  societies,  Germany,  9. 

Mutual  associations,  sickness  in- 
surance, 29. 

Need  of  social  insurance,  relative, 
Europe  and  America,  22. 


1 68 


INDEX 


Negligence,  basis  for  liability,  4; 

contributory,  41,  151. 
New    Zealand,    old-age    pensions, 

18,  139- 

Old-age  annuities,  Massachusetts, 
30;  old-age  insurance,  com- 
pulsory, Germany,  14,  76-77, 
12;  division  of  cost,  36;  France, 
37;  deductions  from  wages,  121 ; 
extent,  15-16;  provision  for  old 
age,  U.  S.,  28-30;  subsidized, 
14;  Belgium,  135-136;  France, 
x35;  Sweden,  37;  teachers, 
Massachusetts,  37;  voluntary 
provision  for,  U.  S.,  30;  Ger- 
many, 10. 

Old-age  pensions,  14-16;  Austra- 
lia, 18,  139;  Belgium,  subsidized, 
33;  effect  on  poor  relief,  129; 
thrift,  138-140;  wages,  117- 
119;  Denmark,  14,  16,  138; 
France,  14-16;  Germany,  19; 
Great  Britain,  15-16,  18;  in- 
dustrial establishments,  U.  S., 
30;  Ireland,  18;  New  Zealand, 
18,  139;  railroads,  U.  S.,  30. 

Organization  of  accident  insur- 
ance,  158. 

Output,  cost  of  insurance  in  per 
cent  of,  83-85,  86. 

Paper  box  industry,  risk  and 
wages,  65. 

Pensions,  effect  on  poor  relief, 
129;  effect  on  supply  of  labor 
and  wages,  1 15-122;  effect  on 
thrift,  138-140;  government, 
and  wages,  115-116;  professors' 
pensions  at  Columbia,  116; 
proportion  of  aged  population 
in  receipt  of,  15-20;  United 
States  war  veterans',  20.  See 
Old-age  pensions. 

Poor  relief,  and  insurance,  129; 
old-age  pensions  as  poor  relief, 
128-129. 

Precedents,  administrative,  for 
compulsory  insurance,  8. 

Premiums,  employers'  liability, 
compared  to  benefits,  51-54. 

Private  insurance  company  rates 
for  employers'  liability  and 
workmen'scompensation,  48-49. 


Professors'  pensions,  and  wages, 
116. 

Profits  and  insurance,  104-105. 
See  Dividends. 

Proportion  of  population  in  re- 
ceipt of  pensions,  15-20. 

Proportion  of  population,  aged, 
Europe  and  America,  22. 

Public  burdens,  88-89,  94~96- 

Psychological  influences  of  wages, 
1 17-123;  accident  compensa- 
tion, 117-118;  old-age  pen- 
sions, competition  direct,  118; 
competition  reflex,  118-119; 
deductions  from  wages,  121; 
effect  on  future  increases  of 
wages,  122;  effect  on  general 
wages,  120;  effect  on  wages 
of  aged  workers,  119;  Law- 
rence strike,  121;  skilled  and 
unskilled  labor,  122-123;  and 
standard  of  living,  120. 

Railroads,  change  of  accident  rate 
and  wages,  66-68;  comparative 
mortality  from  accident,  63, 
7i_73;  employers'  liability, 
Germany,  4;  liability,  U.  S., 
41;  old-age  pensions,  U.  S.,  30; 
union  benefits,  26-27,  29. 

Rates  for  employers'  liability,  in 
dangerous  industries,  44;  in 
specified  industries,  45-51 ;  state 
and  private  insurance,  48-51. 
See  Employers'  liability,  Work- 
men's compensation. 

Relief,  see  Poor  relief. 

Risks  of  industry,  among  skilled 
and  unskilled,  62;  avoidance  of 
trade,  59-63;  correlation  of 
wages  and  risk,  68-69;  economic 
theory,  57-63;  effect  on  charac- 
ter of  personnel,  62;  effect  on 
permanence  of  labor  force,  61; 
effect  on  wages  in  dangerous 
trades,  56-73;  insurance  for,  as 
part  of  standard,  58-59;  knowl- 
edge of  risk,  60-61 ;  legal  theory, 
57.  See  Accident  rate,  wages, 
etc. 

Safety  laws,  administration  in 
connection  with  accident  in- 
surance, 154. 


INDEX 


I69 


Savings  and  insurance.  See 
Thrift.     Savings  in  schools,  32. 

Savings  bank  insurance,  Massa- 
chusetts, 30. 

School  savings,  32. 

Seafaring,  accident  rate,  39. 

Seamen,  employers'  liability  for, 
Germany,  7. 

Serfdom,   abolition   of,  Germany, 

7- 

Shifting  process  in  industry,  100- 
106;  reductions  in  profits,  104- 
105;  reductions  in  wages,  105; 
savings  in  expenses,  102-104; 
shifting  of  burden,  101-102. 

Sickness  insurance,  compulsory, 
13;  division  of  cost,  Germany, 
8,  12;  employers'  liability  for 
seamen,  Germany,  7;  establish- 
ment funds,  29;  extent,  15-16; 
Germany,  5-1 1,  13-14,  75; 
mutual  associations,  29;  share  of 
accident  cost  borne  by  German 
sickness  insurance  funds,  8,  51; 
subsidized,  14, 16;  United  States, 
20,  28-29.  See  Invalidity  in- 
surance, Old-age  pensions,  etc. 

Skilled  labor,  wages  and  risk,  64- 
66,  69;  wages  and  old-age  pen- 
sions, 1 19-122. 

Social  insurance,  accident  rate 
and,  37,  129;  advantages  of,  I, 
22-23,  3*1  156-157;  burden, 
37,  86-99,  IO°;  definition,  2-3; 
effect  of  on  thrift,  128-141.  In 
Germany,  74-99;  accident  in- 
surance, 75-76;  benefits  paid, 
75;  contributions  of  employers, 
employees  and  state,  77;  cost  in 
per  cent  of  wage,  78-79,  86; 
cost  per  employee  per  year, 
79-82 ;  cost  in  per  cent  of  capital, 
82-83;  cost  in  Per  cent  °f 
dividends,  83-89;  cost  in  per 
cent  of  value  of  output,  83-85, 
86;  division  of  cost,  77;  in- 
validity insurance,  76-77;  popu- 
lation insured,  74;  sickness 
insurance,  75.  Need  of,  rela- 
tive, Europe  and  America,  22. 
See  Accident  insurance,  Sick- 
ness insurance,  Old-age  pen- 
sions, Cost,  etc. 


Standards  of  living,  and  thrift, 
I3I_I33;  and  wages,  58,  120- 
122. 

State  insurance  rates,  48-49. 

State  subsidy,  Germany,  77-78. 

Statistics  of  accidents,  analysis, 
144-152;  of  insurance,  Germany, 
about  1870,  10;  of  insurance, 
European  countries,  1912,  16; 
of  insurance,  United  States, 
25-30;  of  wages  and  risk,  63-73; 
pay  in  skilled  and  unskilled 
trades,  63-64;  relative  pay  of 
persons  killed  in  accidents,  64; 
paper  box  industry,  by  occupa- 
tion, 65;  change  of  accident  rate 
in  railroading,  66-68;  correla- 
tion of  wages  and  risk,  68-69; 
relative  unimportance  of  risk, 
70;  of  old-age  pensions,  15-19, 
20. 

Strike,  Lawrence,  121. 

Subsidies,  old-age  insurance,  14; 
France,  135;  Belgium,  33,  135- 
136. 

Superannuation.  See  Old-age  in- 
surance, Old-age  pensions. 

Supply  of  labor,  accident  com- 
pensation and,  114-115;  move- 
ment from  less  to  more  danger- 
ous trades,  114-115;  migration 
to  compensation  state,  115; 
old-age  pensions  and,  115-116; 
partial  system,  1 1 5—1 16;  govern- 
ment civil  pensions,  115;  pen- 
sions for  professors,  Columbia, 
116;  immigration,  116-117;  age 
requirement,  117. 

Survival  of  the  fittest  and  social 
insurance,  35. 

Sweden,  old-age  insurance  and 
thrift,  137;  old-age  insurance, 
14;  sickness  insurance,  14. 

Taxes  compared  to  burden  of 
social  insurance,  88-89,  92t 
94-96;  burden  equalized  by 
taxes  abroad,  90. 

Technique,  improvement  in  Ger- 
many, 88,  87,  99;  as  reduction 
in  cost,  102-104. 

Thrift,  128-141,  157,  37;  among 
immigrants,  131;  among  middle 


170 


INDEX 


class,  132;  Australia,  old-age 
pensions  and,  139;  Belgium, 
subsidized  insurance  and,  135- 
136;  change  in  contributions  of 
workmen  and,  138;  compulsory 
insurance  and,  136-138;  Sweden, 
137;  industrial  insurance,  137; 
change  in  contributions  of  work- 
men, 138;  definition,  131;  Den- 
mark, old-age  pensions  and, 
138;  distribution  of  cost,  128- 
137;  education  and,  32;  exemp- 
tions of  savings  in  pension 
laws,  139-140;  France,  sub- 
sidized old-age  insurance,  135; 
industrial  insurance  and,  137; 
inherited  trait,  32;  measure- 
ment of  pension  to  need  and, 
138;  middle  class  virtue,  132; 
motives  to,  132,  140;  old-age 
and,  130,  133;  old-age  pensions 
and,  138-140,  33;  Denmark, 
138;  Australia,  139;  exemptions 
of  savings,  139-140;  measure- 
ment of  pension  to  need,  138; 
school  savings,  32;  social  in- 
fluences affecting,  32;  standard 
of  living  and,  131;  subsidized 
insurance  and,  134-136;  Bel- 
gium, 135-136;  France,  135; 
survival  of  fittest  and,  34; 
Sweden,  old-age  insurance  and, 
137;  varies  with  conditions  and 
time  of  life,  133. 

Trade,  expansion,  Germany,  86, 
87,  89,  99. 

Trade  union  insurance,  25-27; 
death  benefits,  25-27. 

United  States,  accident  insurance, 
27-28;  common  law  liability, 
40;  employers'  liability,  cost, 
38-51;  industrial  insurance,  23, 
25-26;  old-age  insurance,  28- 
30;  sickness  insurance,  20, 
28-29;  social  insurance,  19-20, 
21-23;  trade  union  insur- 
ance, 25-27;  war  pensions, 
20;  workmen's  compensation, 
19-20;  wage-workers,  22;  con- 
ditions in,  21-22.  See  Accident 
insurance,  Cost,  Sickness  insur- 
ance, Old-age  pensions,  Work- 
men's compensation,  etc. 


Unskilled  workmen,  wages  and 
risk,  63-64;  wages  and  old-age 
pensions,  122-123. 

Value  of  product,  cost  of  insurance 
in  per  cent  of,  83-85,  86. 

Voluntary  insurance,  in  guilds,  6; 
Denmark,  14,  16;  Germany,  for 
old  age,  10;  subsidized,  14,  33, 
X35-I36;  in  United  States, 
25-30. 

Wage-earners  in  the  United  States, 
22;  in  European  countries,  12. 

Wages,  accident  mortality  and, 
114-115;  adjustment  to  risk, 
56-73;  avoidance  of  trade,  and, 
59-63;  comparative  mortality 
and,  70-73;  cost  of  social 
insurance,  Germany,  in  per 
cent  of,  78-79;  deductions  from 
wages,  opposition  to,  35;  effect 
of  insurance  on,  126-127,  113- 
127;  demand  for  labor,  123-127; 
depends  on  weight  of  burden, 
126-127;  opposing  views,  113- 
114;  psychological  influences, 
1 17-123;  supply  of  labor,  114- 
117;  accident  compensation, 
114-115;  old-age  pensions,  1 15— 
117;  high  wages  abroad  offset 
burden  of  insurance,  Germany, 
90;  increase  of  wages  in  Ger- 
many, 86,  88,  93;  mortality, 
comparative,  and,  70-73;  old- 
age  pensions  and,  1 15-122; 
paper  box  industry,  risk  and, 
65;  per  cent  of,  burden  in,  Ger- 
many, 78-79. 

Wages,  risk  and,  56-73;  avoidence 
of  trade,  59-63;  correlation  of 
risk  and  wages,  68-69;  insurance 
a  part  of  standard,  58-59; 
theories  of,  58;  unimportance 
of  risk  as  factor  in  wage,  70; 
wages  of  persons  killed  in 
accidents,  64;  standard  of  living, 
58-59, 1 17-123. 

War  veterans'  pensions,  U.  S.,  20. 

Welfare  of  workers  and  social 
insurance,  93,  97;  Germany. 

Workers,  attitude  of  to  employers' 
liability,    40;    burden    of    em- 


INDEX 


171 


ployers'  liability  on,  51-54; 
welfare  of  in  Germany,  93,  97. 
Workmen's  compensation,  admin- 
istration of,  154;  cost  of,  51; 
accident  rate  and,  142-155; 
accident  neurosis,  alleged  prev- 
alence, 154-155;  cause  of  acci- 
dent, 150-152;  fault  of  employer, 
I50-I5';  fault  of  employee, 
152;  cost  placed  on  employer, 
143;  decrease  in  cost  Germany, 
147-149;  comparative  benefits 
for  total  disability,  50;  cost  of 


administration,  51;  disability, 
total,  comparative  benefits,  50; 
effect  of  administration  of  de- 
crease of  accident  rate,  153- 
154;  elective,  U.  S.,  158;  fatal 
accident  rate,  144-145;  partial 
disability,  temporary,  145-146; 
permanent  disability,  partial, 
144-146;  total,  144-145;  sta- 
tistics, of  accidents,  reliability, 
144;  United  States,  19-20; 
Germany,  144-146. 


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